Ireland – Status of the AIFMD implemention
By Donnacha O’Connor, Dillon Eustace – The Irish AIFMD rules – The Irish Minister of Finance signed the European Union (Alternative Investment Fund Managers) Regulations, 2013 into law on 16th July, 2013. These regulations transposed Directive 2011/61/EU into Irish law with substantially no gold-plating.
A number of European Commission “Delegated” and “Implementing” pieces of legislation have direct legal effect in Ireland including Commission Delegated Regulation (EU) 231/2013 of 19 December, 2012 supplementing Directive 2011/61/EU, Commission Implementing Regulation (EU) No 447/2013 of 15 May 2013 establishing the procedure for AIFMs which choose to opt in under Directive 2011/61/EU and Commission Implementing Regulation (EU) No 448/2013 of 15 May 2013 establishing a procedure for determining the Member State of reference of a non-EU AIFM pursuant to Directive 2011/61/EU.
The Central Bank of Ireland’s stated general policy with respect to ESMA measures is to apply them as is. On can assume that the Central Bank’s policy will therefore be at one with the following ESMA publications and any others unless in the unlikely case that there was a conflicting applicable legislative provision or generally unless the Central Bank were to indicate the contrary: ESMA’s Final Report: Guidelines on sound remuneration policies under the AIFMD, ESMA’s Final Report: Guidelines on Key Concepts of the AIFMD, ESMA’s Final Report: Guidelines on reporting obligations under Articles 3(3)(d) and 24(1), (2) and (4) of the AIFMD and ESMA’s Opinion: Practical arrangements for the late transposition of the AIFMD.
ESMAs Final Report: ESMA’s technical advice to the European Commission on possible implementing measures of the Alternative Investment Fund Managers Directive also has some relevance in interpreting the legislative requirements.
The Central Bank will also generally adopt a policy consistent with the European Commission’s pronouncements on matters relating to AIFMD in the Commission’s Q&A on the application of the AIFMD.
The Central Bank’s “AIF Rulebook” (latest version: July, 2013, available on the Central Bank’s web-site) applies to Irish regulated AIFs (Retail and Qualifying Investor), AIFMs, AIF administrators, management companies and depositaries.
The Central Bank publishes many of its policy decisions in its own Q&A on AIFMD (available on its web-site).
The Central Bank also publishes a guidance referred to as “Guidance relating to AIFs and their service providers” which is available on Central Bank web-site.
The Irish AIFMD industry
Ireland, a member of the EU, eurozone and OECD, has a funds industry that supports approximately 915 promoters across both domiciled and non-domiciled funds.
With over 439 fund promoters from over 50 countries represented, Ireland is home to 5644* regulated investment funds of which approximately 2,265* are Alternative Investment Funds (i.e. non-UCITS). It is a major international fund domicile facilitating cross-border distribution of funds to approximately 70 countries across the globe.
The industry employs in excess of 12,500 people locally providing a range of services, including fund administration, transfer agency, custody, AIFM management company services, legal, tax and audit services.
Ireland’s approach to the Directive’s national discretions and options
Member States have very little discretion as to how to implement Directive 2011/61/EU, as it is mostly what is known as a maximum harmonisation Directive.
However, Article 60 of the Directive provides for a limited number of national options or derogations: these are: Article 6 (AIFMs may be allowed to provide individual portfolio management and other ancillary services to non-AIFs), Article 9 (up to 50% of an AIFM’s own funds may be covered by a guarantee), Article 21 (certain limited liquidity AIFs may appoint depositaries subject to mandatory professional registration as opposed to regulation), Article 22 (non-EU AIFs can subject their annual financial statements to an audit meeting international accounting standards as opposed to Directive 2006/43/EC), Article 28 (an AIFM taking control of an EU unlisted issuer may be required to provide certain information to the issuer’s home Member State regulator in addition to the issuer and other parties), Article 36(2) (host Member States are not obliged to allow EU AIFM to market non-EU AIF to investors in their territories and may impose stricter rules on EU AIFM marketing non-EU AIF than the minimum rules set out in Article 36(1)), Article 42(2) (host Member States are not obliged to permit non-EU AIFM to market AIF to investors in their territories and may impose stricter rules on non-EU AIFM marketing AIF than the minimum rules set out in Article 42(1)), Article 43 (permitting AIFM to market AIFs to retail investors) and 61(5) (transitional provision for depositaries).
The Irish implementing legislation empowered the Central Bank of Ireland to avail of each of the above options and derogations with the exception of the option referred to in Article 28(2) which Ireland has not availed of in its implementation legislation. The Central Bank has availed of each of the derogations with the exception of Article 21 and Article 22 (to date the Central Bank has not created rules for this option and derogation respectively).
Marketing AIFs to Irish Professional Investors
Ireland has transposed Articles 32, 36 and 42 of Directive 2011/61/EU. The definition of “marketing” in the Irish regulations is taken from Directive 2011/61/EU and the Irish regulations do not address reverse solicitation, nor has the Central Bank. In public pronouncements on the matter, senior officials from the Central Bank have been quite negative about the appropriateness of reverse solicitation in an Irish context as a sales strategy though it is not prohibited.
EU AIFM may market shares of EU AIFs that they manage to Irish professional investors subject to the regulator to regulator notification procedure set out in Article 32. The AIFMs in these cases must comply with the requirements set out by their national competent authorities. The Central Bank does not charge a fee for processing such notifications. While the Central Bank would expect, as is required by Annex IV point (h) of the Directive, that information about the arrangements made for the marketing of AIFs and, where relevant, information on the arrangements established to prevent shares of the AIF from being marketed to retail investors would be included in the notification, the Central Bank does not impose any specific or additional requirements in that regard.
EU or non-EU AIFM are permitted to market non-EU AIFs to Irish professional investors on a private placement basis subject to advance notification to the Central Bank of Ireland. The notification is in standard form and the forms are available on the Central Bank’s web-site. The form must include the name of the AIFM and the AIF and the identity of the jurisdiction in which the AIFM is domiciled and the jurisdiction where the AIF is domiciled. In the case of an Irish AIFM, the AIFM must confirm the identity of the entity(ies) performing the depositary services referenced in Articles 36(1)(a) (i.e. those services set out in Article 21(7),(8) and (9)). There is no regulatory fee associated with such notification. The Central Bank of Ireland provided for a transitional application of Article 42 in relation to such marketing up to 21 July, 2014.
The notification form contains a confirmation from the AIFM that the information in the form is accurate and complete to the best of its knowledge and belief and a number of other confirmations from the AIFM including a confirmation that the AIFM understands that it is a criminal offence to knowingly or recklessly give the Central Bank of Ireland information that is false or misleading in any way and that the AIFM will notify the Central Bank in the event that the AIF(s) is/are no longer being marketed into Ireland by the AIFM.
As is the case with Article 36, the Irish legislation requires that EU AIFMs marketing non-EU AIFs to Irish investors must also observe the following pre-conditions:
a) the AIFM complies with all the requirements established in the Directive 2011/61/EU with the exception of Article 21 provided that the AIFM must ensure that one or more entities are appointed to carry out the duties referred to in Article 21(7), (8) and (9) and the AIFM must not perform those functions. The AIFM must provide its supervisory authorities with information about the identity of those entities responsible for carrying out the duties referred to in Article 21(7), (8) and (9);
b) appropriate cooperation arrangements for the purpose of systemic risk oversight and in line with international standards are in place between the competent authorities of the home Member State of the AIFM and the supervisory authorities of the third country where the non-EU AIF is established in order to ensure an efficient exchange of information that allows the competent authorities of the home Member State of the AIFM to carry out their duties in accordance with the Directive;
c) the third country where the non-EU AIF is established is not listed as a Non-Cooperative Country and Territory by FATF.
As is the case with Article 42, the Irish legislation requires that non-EU AIFMs marketing non-EU AIFs to Irish investors must also observe conditions (b) and (c) above and the following condition instead of condition (a) above:
a) The non-EU AIFM complies with Article 22, 23 and 24 in respect of each AIF marketed by it and with Articles 26 to 30 where an AIF marketed by it falls within the scope of Article 26(1).
The Irish implementing legislation gives the Central Bank the power, where the Central Bank considers it necessary for the proper and orderly regulation and supervision of alternative investment fund managers, to impose additional conditions or requirements on an AIFM that markets one or more AIFs to professional investors in Ireland.
Marketing AIFs to Irish retail investors
As regards marketing to retail investors, the Irish regulations permit AIFM to market AIFs to retail investors and empowers the Central Bank to impose stricter requirements on the AIFM or the AIF than the requirements applicable to AIFs marketed to professional investors, provided that the Central Bank may not impose stricter or additional requirements on EU AIF established in another Member State. The Central Bank’s “AIF Rulebook” dated July, 2013 provides that the AIF must be specifically approved by the Central Bank to market its shares in Ireland to retail investors and must include the following statement, in a prominent position, in each copy of its prospectus and in any marketing material distributed in Ireland for the purposes of promoting the AIF to retail investors:
• “While this AIF has been approved to market its units to the public in Ireland by the Central Bank, the scheme is not supervised or authorised in Ireland. It is incorporated/established in __________ and is supervised by __________.”
Furthermore, the AIF must include the following information for Irish shareholders in its prospectus:
a) details of the facilities agent and the facilities maintained;
b) provisions of Irish tax laws, if applicable; and
c) details of the places where issue and repurchase prices can be obtained or are published.
Where the AIF is constituted as an umbrella fund, it can only market sub-funds for which it has received specific approval from the Central Bank.
The AIF, in marketing its units in Ireland to retail investors, must comply with the Irish Consumer Protection Code of the Central Bank.
Finally, the AIF must submit to the Central Bank a copy of its annual and half-yearly reports, as soon as they are available.
*Source: Central Bank of Ireland, April 2014; includes subfunds.