Keeping up with the curve
The efforts of the Irish authorities to persuade hedge fund managers to domicile their funds in the jurisdiction are starting to bear fruit, with the launch of a new expedited approval process for Qualified Investor Funds earlier this year removing one of the previous constraints on the growth of Irish-domiciled funds, a sometimes lengthy wait for a fund to receive authorisation. Under the new regime for 'super-QIFs', as they have been dubbed by the industry, much of the work involved in obtaining approval work is in fact carried out by the fund's lawyers and service providers, who review documentation, complete the (comprehensive) application and submit it to the Irish Financial Services Regulatory Authority. An application received by the regulator before 3 p.m. will now allow a fund to receive approval for 9 a.m. the next morning.
The change in the authorisation process, which has resulted in a surge of new business for Ireland as a fund domicile, reflects a commitment on the part of the authorities to ensure that the country's regulatory regime is a competitive one. No longer does Ireland's alternative funds regime trail behind the country's highly successful administration business for funds domiciled elsewhere.
For example, the industry is pushing hard to establish a definitive version of the Central Bank of Ireland's guidance notes on prime brokers and other financial counterparties, but important progress has already been made. For example, the previous version published in 2004 lifted the hypothecation limit from 100 per cent to 140 per cent, closer to the US model, but regulations governing the QIF structure now set no limit at all, leaving the level to be agreed between the prime broker and the hedge fund. Discussions are also currently underway between the industry and the regulator on updating of the guidance notes on the valuation process for OTC derivatives. The existing guidance requires changes to ensure that practice on OTC valuations matches current market practice, but the industry is confident that the regulator will be flexible and ensure that the revision process is completed promptly.
The regulator has to reconcile the needs of differing sections of the industry. For providers that service long-only funds, the need for regular change is less than among alternative administrators seeking to keep up with the evolution of new products, and for whom guidance notes issued just a couple of years ago can quickly become out of date. Nevertheless, the industry understands that the regulator validate itself what is happening in the market before making the necessary changes.
Time is often of the essence in the alternative investment industry, and innovations from one jurisdiction quickly find their way into others - like the protected cell company, which first appeared in Guernsey before being adopted by Ireland, Luxembourg and Jersey. Once the need for PCCs in Dublin was evident, the authorities moved to put them in place. The important thing is not necessarily to be ahead of the curve, but to be on it.
The Irish Funds Industry Association is quick to address the regulator with the industry's concerns and recommendations, and the result is appropriate guidance notes or other regulation that satisfies all parties. Then it's up to service providers to ensure they have the correct controls, procedures and policies and training in place to adhere to the rulebook and provide the first-class service that is Dublin's ultimate competitive edge.
Mark Sweeney is managing director of Bear Stearns Bank in Dublin
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