Regulatory developments set to affect the funds industry over the next 12-18 months
While funds and their service providers may still be catching their breath after a particularly busy year dealing with a whole host of regulatory developments ranging from PRIIPs, the Benchmarks Regulation and MiFID II to GDPR and CP86, other regulatory initiatives, as outlined below, are likely to keep industry busy over the next 12-18 months.
Revised CBI UCITS Regulations
Following on from CP119 earlier this year, the Central Bank is expected to publish a revised set of the CBI UCITS Regulations before year-end. The revised CBI Regulations will put existing guidance relating to the use of FDI at share class level on a statutory footing and will make necessary amendments to the existing regime following the implementation of the Money Market Fund Regulation earlier this year. It will also see the Central Bank’s existing guidance on performance fees becoming law. The Central Bank also indicated in CP119 that it will require that performance fees charged to UCITS funds crystallise no more frequently than annually. Earlier this month, the Central Bank also wrote to UCITS management companies requiring them to conduct a review of existing performance fee arrangements by 30 November to ensure that they comply with the Central Bank’s existing guidance on performance fees. Where relevant, UCITS management companies must identify any improper payments of performance fees which have been identified in the course of that review.
The Securitisation Regulation will take effect on 1 January next in respect to securitisations the securities of which are issued on or after that date. This regulation will subject UCITS management companies 1 to securitisation rules for the first time while existing securitisation rules applicable to AIFM2 will be tailored. In particular, management companies will need to comply with a number of due diligence obligations which will vary depending on whether the securitisation involves an ABCP transaction or a longer-term securitisation. These rules will apply to management companies regardless of where the securitisation is located (i.e. whether EU or non-EU). AIFMs will also be obliged to continue to comply with the existing securitisation rules in respect of securitisations the securities of which were issued before 1 January next.
New corporate governance framework for Irish investment firms
It is expected that investment firms and market operators which have been designated by the Central Bank as high, medium high or medium low impact firms will be required to comply with new corporate governance requirements with effect from 1 July 2019. Such requirements will address, amongst other matters, board composition and a requirement to establish an audit committee and a risk committee.
4th AML Directive
The 4 th AML Directive is due to be transposed into Irish law by year-end, with the legislation expected to address certain of the shortcomings identified by FATF in their AML inspection of Ireland last year. Statutory Instruments addressing aspects of beneficial ownership are also expected shortly.
Developments in Europe
At a European level, industry awaits confirmation as to whether the Commission review on PRIIPs, which is due to be conducted before year-end, will be postponed in light of the original year-long delay in implementing the PRIIPs Regulation. This will be of particular relevance to UCITS managers given that the review must determine whether the Commission will extend the current exemption for UCITS to produce a KID (which is due to expire in December 2019), deem UCITS KIID equivalent to PRIIP KIID or require UCITS to produce a KID instead of a UCITS KIID. EFAMA has called on the Commission to postpone the date by which the review must be conducted to 31 December 2020 and has also called for the exemption for UCITS from producing a PRIIP KIID to be extended until December 2021.
Separately, we can also expect some more certainty around the date on which management companies will need to begin to report SFT trades to a trade repository as the Commission is expected to finalise technical standards addressing the reporting obligations before year end, with reporting obligations applicable to management companies unlikely to apply until June 2020 at the earliest.
It is also expected that agreement will be reached on the new cross-border distribution framework for both UCITS and AIFs in the course of 2019, with a 24 month transitional period to apply to the omnibus directive once agreed.
1 This will include internally managed UCITS funds
2 This includes internally managed AIF funds
Áine McCarthy, Senior Associate - Asset Management Group, Dillon Eustace