2. DUBLIN: A Prime EU Location for Fund Administration Part II
The inclusion, in the consolidated Regulations, of provisions allowing for a Common Contractual Fund (CCF) now means that <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Ireland is the only country in the European Union where UCITS can be established under all three structures; Corporate, Trust and Contract structures. This legislation follows on from a provision in the Finance Act 2003 to allow for the CCF to be a fiscally transparent vehicle for Irish tax purposes. The availability of the CCF will enable, amongst other things, the establishment in Ireland of an internationally recognised pooled pension structure. It is expected that this contract structure will have a particular appeal to multi-national companies, which operate pension schemes in a number of different jurisdictions for the benefit of employees in those jurisdictions.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
Commenting on these developments, Gary Palmer, Chief Executive of the Dublin Funds Industry Association noted, "These timely developments re-enforces Irelands commitment to remain to the forefront of the international investment funds arena, and yet again demonstrates the mutual benefit of the government agencies, the regulator and the Industry working together".
The Irish Financial Services Regulatory Authority
The Irish Financial Services Regulatory Authority ("IFSRA"), established on 1 May 2003, is the new regulator of all financial services firms in Ireland. It also has an important role in the protection of the consumers of those firms. As Financial Services Regulator, IFSRA's main tasks are:
* Helping consumers to make informed and responsible decisions on their financial affairs in a safe and fair market; and
* Fostering sound and solvent financial institutions which gives depositors and other consumers of financial products confidence that their deposits and investments are safe.
IFSRA is a distinct component of the Central Bank and Financial Services Authority of Ireland, with clearly defined regulatory responsibilities. These cover all Irish financial institutions including those previously regulated by the Central Bank, Department of Enterprise, Trade and Employment (DETE), Office of the Director of Consumer Affairs (ODCA) and Registrar of Friendly Societies.
IFSRA contributes to the work of the Central Bank in discharging its responsibility in relation to the maintenance of overall financial stability.
Protecting the Consumer
IFSRA has a clear focus on consumer issues. It will strengthen consumer protection and considerably enhance and develop consumer information. There will be a strong focus on transparency, competition and choice for the consumer and it will concentrate on issues such as conduct of business rules and consumer information and education. The Consumer Director, who is a full member of the Authority, will have considerable powers and direct statutory responsibility.
In providing consumer protection, the IFSRA will focus on problem prevention and will:
* Provide consumer information and education through various channels in relation to the costs, risks and benefits
of financial products.
* Monitor competition in the market for financial services by working with the Competition Authority; and
* Promote and be a strong advocate for the interests of consumers of financial products.
It will seek to provide protection to consumers in a number of integrated ways:
Codes of Conduct and their Enforcement
* The introduction of sound conduct of business rules, which oblige financial institutions to act in a fair and transparent manner.
* The policing and enforcement of those codes by on-site inspections, backed-up by enforcement powers.
Consumer Information and Education
* The introduction of consumer awareness programmes that enhance the understanding of the consumer's rights and the public's level of financial knowledge. A focus on life-long learning will form part of our approach.
Industry Education and Competence
* A focus on a well-trained industry with professional training courses and the promotion of continuous professional development.
* The promotion within industry of an understanding of codes of conduct and the importance of consumer protection.
* It will work with the Competition Authority on the development of close monitoring systems for market development and competition.
Motor Insurance Advisory Board
* The implementation of relevant MIAB recommendations, which seek to increase consumer protection in the area of motor insurance.
* It will foster a consumer friendly complaints-handling mechanism by working with the Financial Services Ombudsman.
* It will seek to open appropriate gateways into the financial market for those who are currently excluded and we will work with various government departments and agencies in this regard.
Promoting a Sound Financial System
A fundamental protection for consumers is the solvency and safety of financial institutions. The Financial Services Regulator has a key responsibility in this area by giving confidence to consumers that their deposits and investments are safe and that their claims can be met. In turn, this contributes to a stable financial system and to the reputation and good standing of the Irish financial sector.
The financial services industry is increasingly global in scale and influence. This poses challenges to both the industry and its regulator. Monitoring global financial and economic developments is an important element of our job.
In the short to medium term, the focus of work in this area will be on:
* The refinement of a regulatory approach based on risk profile and impact of default;
* Risk assessment, measurement and control techniques in all sectors of the industry;
* Data collection associated with developing better early warning indicators of prudential stress;
* A programme of on-site inspections.
The Irish Stock Exchange (ISE)
The Irish Stock Exchange is recognised worldwide as a leading centre for listing investment funds and is proving to be a popular listing location for hedge funds.
With over 1,500 funds and 1,800 sub-funds listed as at April 30, 2003, the ISE's combination of effective and prudent regulation, flexibility of approach and efficient and timely processing of listing applications has proved attractive and cost effective. This section provides a background to the listing of investment funds, a guide to listing on the ISE™ and a summary of its listing requirements.
- A listing increases a fund's potential investor base.
- Legal or regulatory constraints may mean that institutional investors are either restricted or prohibited from investing in unlisted securities or securities which are not listed on a recognised, regulated stock exchange
- Many fund investors require a publicly quoted stock exchange price for their investments.
- A listing increases a fund's prestige and profile.
- A listing on a long established, well regulated and recognised European stock exchange provides a valuable marketing tool for fund promoters.6 A listing provides publicly available information for investors. All NAVs notified and announcements made by listed funds are reported through the Irish Stock Exchange information dissemination system and are carried by Reuters, Bloomberg, and other news services.
- Investors derive comfort from the fact that the Stock Exchange Listing Committee has reviewed the document and, although they are not recommending the fund per se, they are determining that it meets Stock Exchange standards for listed funds
The ISE™ has achieved its leading position in the listing of investment funds because it has a number of key strengths.
- Reputation: The ISE™ is a long established, well regulated and reputable European stock exchange. Since its establishment in 1793, the ISE™ has provided the main national market for Irish equity securities and Government bonds. From 1973 to 1995 it was merged with the London Stock Exchange. Since separating, it has continued to apply standards of regulation to stockbrokers and listed companies which are acknowledged to be among the highest in Europe. These characteristics provide a listed fund with the credibility and profile which are valuable tools in the marketing of the fund worldwide.
- Recognition: The ISE™ has received the relevant recognitions from the market authorities in many jurisdictions including France, Japan and the United States. This significantly expands the potential investor base for listed funds.
- Experience: The ISE has been listing investment funds since 1989 and currently list in excess of 150 new funds each year. As a result, it has listed funds from almost every major fund domicile (i.e. Cayman Islands, Bermuda, British Virgin Islands, the Netherlands Antilles, the Channel Islands, the Bahamas, Isle of Man, and Ireland). It has extensive experience of many types of investment vehicles, structures and products having listed hedge funds, feeder funds, multi-manager funds, as well as funds investing in venture capital, emerging markets and derivatives.
- Specialist Knowledge: The ISE has a team of experienced listing personnel specialising in the investment fund sector which ensures a consistent and pragmatic approach to the documentation required for listing.
- Specialist Rules: The ISE has specific, commercially driven, listing requirements. In 1996, it published updated listing requirements for investment funds, following extensive and inclusive industry consultation. These requirements are continuously under review and a revised edition was published in August 1998.
- Flexibility: Its experience has allowed the ISE to recognise and appreciate the commercial reality and evolving nature of the funds sector and it is constantly reviewing, amending and adapting its rules to facilitate new fund structures and products.
- Speed : It commits, and ensures adherence to, strict turnaround times on all documents submitted to it (i.e. one week for a first draft and two working days for subsequent drafts).
- Costs: The listing fees are competitive with, or more attractive than, those of other listing centres.
Frequently Asked Questions
- Must a fund be registered or domiciled in the European Union to be suitable for listing? No. The ISE™ has listed funds which are registered or domiciled in almost every established funds centre in the world.
- Must a fund be supervised by a regulatory body to be suitable for listing? No. However, a fund which is not subject to regulation within the EU, the Channel Islands, the Isle of Man, Bermuda or Hong Kong, must be confined to sophisticated investors, (i.e. have a minimum subscription of US$100,000).
- What legal structures can be listed? A fund may be either open or closed-ended. A fund may be a company, unit trust, limited partnership or other legal entity with limited liability.
- Are there specific requirements for certain types of funds? In order to facilitate the commercial reality of the funds industry, the ISE™ has developed specific requirements to facilitate feeder funds, futures funds, hedge funds, venture capital funds and index tracker funds.
- Are there restrictions on the types of investment which a fund can make? Other than complying with the requirements for risk spreading (a summary of these is contained in checklist 1), a listed fund is free to invest in any type of investment. Direct investment in real property and commodities is, however, restricted.
- May a fund borrow or leverage? The ISE™ has no restriction on the amount which a fund may borrow or leverage provided that the fund's policy in this area is clear, the limits (if any) are described in the listing document and all risks associated with such borrowing/leverage are fully disclosed.
- Does a fund have to be established for a particular period before it can list? No. Newly established funds may be listed.
- Are funds which are registered and domiciled in Ireland treated differently? Yes. While the ISE™ applies its requirements consistently to all funds, their policy requirements are streamlined to facilitate the smooth listing of funds which are registered with and regulated by IFSRA.
Can a listed fund restrict the transfer of its shares/units in certain instances? In principle, listed shares/units must be freely transferable. However, the ISE™ accepts the necessity to restrict transfers where the holding of such shares may result in regulatory, pecuniary, legal, taxation or material administrative disadvantage for the fund or its share/unitholders as a whole. In addition, the ISE™ accepts a restriction on transfer to retain a minimum holding per share/unitholder.
- Minimum size at launch: There is no requirement for the minimum size of the fund at launch. This means that the promoter has to decide on the minimum size, which becomes an economic question.
Steps to Achieving an Irish Stock Exchange Listing
The listing process comprises the following distinct stages:
- Appoint a sponsor: A sponsor, which is registered with the ISE™, must be appointed by every applicant fund. The sponsor is responsible for dealing with the ISE™ on all matters in relation to the application and for ensuring the applicant's suitability for listing prior to any submission to the ISE™. A current list of registered sponsors may be obtained from the ISE™.
- Comply with the ISE™ conditions for listing: Every fund and its sponsor must be satisfied that it can meet all the conditions for listing prior to applying to the ISE™. The ISE™ should be consulted in advance in the case of any difficulties or uncertainty. Checklist 1 summarises the main conditions for listing.
- Submit draft listing document/prospectus to the ISE™ for approval: A fund must submit, through its sponsor, a listing document for review and comment by the ISE™. Usually this document will also be the prospectus or offering memorandum which will be used to promote the fund. The ISE™ requires specific disclosures to be included in the document (see checklist 2 for a summary) which must also demonstrate compliance with the ISE's conditions for listing.
Approval of listing document and submission of '48 hour' documents:
- Once approved by the ISE™, the listing document must be signed off by the directors and sponsor before publication. Back up documents including material contracts, constitutive documents and directors' details and confirmations must be submitted to the ISE™ at least 48 hours before the fund is due to list - hence "48 Hour Documents".
- Listing: Once shares or units in the fund are issued, the listing will proceed on the day requested by the fund promoters.
- "Continuing" Obligations: Once listed, a fund must continue to comply with the conditions for listing and must comply with the Continuing Obligations of the ISE™.
As the above list indicates, with firm and flexible regulation, provided by IFSRA, a recognised stock exchange and a whole host of leading fund services providers, Dublin offers a premier EU location for investment funds.
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