Article by Barry McGrath, Stephen Carty, Peter Stapleton, Paul Dobbyn, Carol Widger and Adam Donoghue From Maples and Calder

1 Legal & Regulatory

1.1 AIFMD Update

On 16 July 2013, the European Union (Alternative Investment Fund Managers) Regulations 2013 (No. 257 of 2013) gave effect to the Alternative Investment Fund Managers Directive (2011/61/EU) (“AIFMD”) in Ireland.

There have been a number of developments over the quarter:

a) On the 2 May 2014, the Central Bank of Ireland (“Central Bank”) published a ninth edition of the AIFMD Q&A. It answers queries likely to arise in relation to the implementation of AIFMD. Amendments were made to question ID 1054 (unregulated master funds) and a new question ID 1071 was included.

New ID 1071

Q: I am an existing QIF/Retail Fund which must comply with the AIF Rulebook on authorisation of the alternative investment fund manager (“AIFM”). As a QIF/Retail Fund I previously sought and was granted certain derogations under the Non-UCITS regime. Will these derogations cease to have validity once the AIF Rulebook is imposed on the QIF/Retail Fund?

A: Yes. Once an AIF becomes subject to the AIF Rulebook, derogations which have been granted to the AIF under the NU Series of Notices will no longer be valid or relevant, other than in the case outlined in ID 1054. Any requests for derogations from the AIF Rulebook will be considered on a case-by-case basis, but will only be considered where the proposal includes a detailed and comprehensive rationale supporting the request.

Amended ID 1054

Under the Non-UCITS regime the Central Bank allowed QIFs, in certain circumstances, to invest up to 100% of their assets in unregulated master funds provided they obtained a Central Bank derogation under Guidance Note 1/01. The Central Bank has clarified that although that derogation will not be available (because that Guidance Note 1/01 will become redundant once the fund becomes subject to the AIF Handbook) AIFs may continue to operate in accordance with the previously obtained derogation.

(b) The Central Bank also published an AIFMD reporting date matrix which outlines the differing reporting periods and dates for submission for authorised AIFMs, Non-EU AIFMs under the private placement regime and certain registered AIFMs and their AIFs. An updated AIFM register was also published.

(c) On 30 May 2014, the Central Bank updated the Retail Investor AIF application form.

(d) On 20 June 2014, the European Securities and Markets Authority (“ESMA”) published a table showing which competent authorities comply or intend to comply with its July 2013 guidelines on the model memorandum of understanding (“MoU”) concerning consultation, cooperation and the exchange of information related to the supervision of AIFMD entities (ESMA/2014/264).

The table indicates that all member states have complied or intend to comply with its guidelines, with the exception of Slovenia. The guidelines are not applicable to Slovenia because, as a consequence of the late transposition of AIFMD, no competent authority has yet been designated for Slovenia under Article 44 of AIFMD. Gibraltar has not responded to ESMA.

(e) On 24 June 2014, Commission Delegated Regulation (EU) No 694/2014 of 17 December 2013 supplementing AIFMD with regard to regulatory technical standards determining types of AIFMs was published in the Official Journal of the EU. It came into force on 14 July 2014.

ESMA: Q&A

On 27 June 2014, ESMA updated its Q&A on Application of AIFMD. Q&As on the following issues have been inserted:

(i) Remuneration and the ability to exclude portfolio managers from the scope of identified staff for the purpose of ESMA’s guidelines on sound remuneration policies under AIFMD.

(ii) Reporting and which countries are covered under references to the “EEA”.

(iii) Reporting and which countries are covered under references to the “Union”.

(iv) Reporting and what mandatory, optional and conditional categories mean.

(v) Notification of AIFMs and identification of existing AIFs.

(vi) Notification of AIFMs under Article 33 of the AIFMD without setting up AIFs.

(vii) Markets in Financial Instruments Directive (2004/39/EC) services under Article 6(4) of AIFMD and passport notifications.

1.2 Irish Collective Asset-Management Vehicle Bill

On 29 July 2014, the Government published the Irish Collective Asset-management Vehicle (“ICAV”) Bill. It facilitates a new type of corporate investment fund vehicle which is tailored to meet the needs of the funds industry. It will now commence the Irish parliamentary process in the autumn.

From a tax perspective, the Bill indicates that an ICAV will constitute an investment undertaking for the purposes of Section 739B of the Irish Taxes Act 1997. Accordingly, the ICAV should be subject to the same tax exempt gross-roll up regime as most existing Irish regulated funds. Further tax legislation implementing the ICAV is expected to be published.

1.3 Money Market Funds – Update

On 4 September 2013, the draft “Proposal for a Regulation of the European Parliament and of the Council on Money Market Funds” (the “draft Regulation”) was published. It contains radical new regulatory measures that will apply to European money market funds (“MMFs”).

On 4 June 2014, the European Central Bank published an opinion on the draft Regulation. It comments on matters including the following:

(i) The complementarity between the draft Regulation and the legal frameworks for UCITS and AIFMs.

(ii) Financial stability.

(iii) The constant net asset value of MMFs.

(iv) The provision of external support.

(v) Risk management of MMFs.

(vi) The role of MMFs in intermediation.

(vii) Internal rating systems.

(viii) Reporting requirements for MMFs.

Of particular note are the following:

The European Central Bank (“ECB”) notes the importance of having convergence between money market fund regulations in the EU and the US. And while the ECB opinion references a risk-based net asset value (“NAV”) buffer as one policy option that was earlier proposed in a US context, the most notable point here is that the main measures proposed so far on the US side by the US Securities and Exchange Commission (which include liquidity fees and redemption gates) do not include a NAV buffer. This could be very significant in that the ECB clearly wishes to avoid the “potential regulatory arbitrage” that would result if the EU regulation requires a NAV buffer and the US regulation does not.

It is also notable that the ECB raises concerns around the proposed NAV buffer not being risk based, so clearly favours a risk-based buffer. This could have positive implications for lower risk money market funds if a buffer was set relative to the risk levels of the portfolio – rather than the current proposed hard level of 3%.

The European Parliament is expected to resume examination of the draft Regulation in the autumn.

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