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www.pwc.ie/assetmanagement
Asset
Management
Newsletter
Welcome to the quarterly
PwC Ireland asset
management newsletter. In
it we cover both local and
international topics
affecting the Irish
funds industry.
November 2014
Contents
Ireland releases updated guidance notes on FATCA............................................................................. 2
Loan origination now permitted for Irish Alternative Investment Funds. .......................................... 5
IRISH UPDATES.................................................................................................................................... 7
Central Bank publishes final rules on loan originating QIAIF .............................................................................................. 7
AIFMD ...................................................................................................................................................................................... 7
EMIR - Treatment of FX Forwards FAQ. ...............................................................................................................................8
ICAV – a new Irish Corporate Vehicle ....................................................................................................................................8
Fitness and Probity Regime .....................................................................................................................................................8
Companies Bill 2012 ................................................................................................................................................................ 9
Management Company Effectiveness ..................................................................................................................................... 9
Corporate Governance Code for Fund Service Providers .................................................................................................... 10
IFIA – Memorandum of Understanding with China’s AMAC ............................................................................................. 10
Cyber attackers turn their focus on hedge funds industry .................................................................. 11
Hedge Fund Administrators Face Cost Pressures............................................................................... 13
EUROPEAN UPDATES......................................................................................................................... 15
AIFMD Update ....................................................................................................................................................................... 15
ESMA issues revised guidelines on ETF’s............................................................................................................................. 15
Financial Transaction Tax ..................................................................................................................................................... 16
Statutory Audit ....................................................................................................................................................................... 17
Cross Border Mergers Consultation ...................................................................................................................................... 17
PRIIPS Update ....................................................................................................................................................................... 17
UCITS V Update ..................................................................................................................................................................... 18
EMIR Updates ........................................................................................................................................................................ 19
Money Market Funds ............................................................................................................................................................. 19
Contacts .............................................................................................................................................. 21
Ireland releases updated guidance notes on FATCA
Rebecca Maher
Tax Director
+353 1792 8634
rebecca.maher@ie.pwc.com
On 1 October 2014, the Irish Revenue Commissioners released updated Guidance Notes on the implementation of US
Foreign Account Tax Compliance Act (FATCA) in Ireland (“Guidance Notes”). These Guidance Notes replace the
previous draft Guidance Notes issued in January 2014, and reflect a number of suggestions and clarifications
requested by various industry groups. Revenue have previously indicated that the Guidance Notes are intended to be a
living document and will be updated intermittently in order to reflect practical issues which may arise over time.
Further categories of financial institution in scope
FATCA applies to certain financial institutions, as defined. The Inter-Governmental Agreement (IGA) defines a
financial institution as:
1.
2.
3.
4.
A Custodial institution;
A Depository institution;
An Investment Entity; or
A Specified Insurance Company.
The Guidance Notes reflect the extended definition of a Reporting Financial Institution to include Relevant Holding
Companies and Relevant Treasury Companies. This is in line with Revenue’s introduction of these categories in the
Regulations which were released last June. The Guidance Notes clarify that such entities will be classified as Financial
Institutions where they are part of a Financial Group i.e. a group which also contains a Custodial Institution, a
Depository Institution, a Specified Insurance Company or an Investment Entity, or where they have a qualifying
relationship with an Investment Entity. Holding companies and Treasury companies which are not part of a Financial
Group should be classed as Non-Financial Foreign Entities (“NFFEs”).
New definitions and clarifications
A number of new definitions are included in the Guidance Notes, including a definition of Passive Income for the
purposes of identifying Passive or Active NFFEs. Furthermore, a new category of Direct Reporting NFFE has been
introduced (similar to the US FATCA Regulations) to allow Passive NFFEs to report details of their beneficial owners
directly to Revenue, instead of having to share such information with counterparties. This will allow such NFFEs to
maintain the privacy of sensitive shareholder information.
The wording around securities held in a Central Securities Depository (“CSD”) has been clarified slightly to include
CSDs other than CREST and to state that the CSD will not be treated as maintaining Financial Accounts. This will be
relevant for Exchange Traded Funds and other funds whose shares are traded through a CSD. The Guidance Notes
also discuss the use of a fund platform in certain cases and note that where legal title is held by the fund platform, the
fund platform will be a Financial Institution in its own right and must comply with relevant due diligence and
reporting requirements.
The definition of Self-Certified Deemed Compliant Entities has been updated to include Investment Managers, where
they are brought within the definition of an Investment Entity solely because they provide investment management
services to a fund. This is in line with the exemption provided for in the US FATCA Regulations.
Clarification is also provided on the role of the Responsible Officer noting that, in a Model 1 IGA jurisdiction such as
Ireland, the US Treasury concept of Responsible Officer is not invoked. Irish Financial Institutions do not need to
appoint a Responsible Officer when registering for a GIIN and instead are required to appoint a Point of Contact only.
Page 2
Change of position in relation to regularly traded Debt or Equity Interests
The January release of the draft Guidance Notes indicated that debt or equity interests of Investment Entities which
were regularly traded were excluded from the definition of Financial Accounts. The draft Guidance Notes further
clarified that an equity or debt interest would have been considered “regularly traded” if it was listed on a recognised
stock exchange, and there was no requirement to show de minimis levels of trading annually. This meant that many
Investment Entities, while falling within the definition of a Financial Institution, would be required to register for a
Global Intermediary Identification Number (“GIIN”) but would submit nil returns each year on the basis that they had
no Financial Accounts.
The updated Guidance Notes have now changed that position. The revised wording states that an equity or debt
interest that is listed solely for regulatory or similar purposes, but where there is clearly no intention to trade, should
not be considered as “regularly traded”. The impact of this is that many Investment Entities whose debt or equity
interests are listed for withholding tax or other purposes, but whose interests are not actually regularly traded, will
now be required to treat those debt or equity interests as Financial Accounts and comply with all relevant due
diligence and reporting requirements. It should be noted that the listed debt or equity carve-out will not apply under
the OECD’s Common Reporting Standard (“CRS”) and as such reporting of such accounts will be required in due
course under the CRS.
Compliance
The Guidance Notes also provide details on the party responsible for ensuring compliance with the FATCA
Regulations in the case of corporate funds, unit trusts and investment limited partnerships.
Registration
Reporting Irish Financial Institutions and Irish entities that qualify as Registered Deemed-Compliant Financial
Institutions will use IRS’s FATCA Registration Portal to register. The revised Guidance Notes clarify that Collective
Investment Schemes can choose to register for a GIIN at either umbrella level or sub-fund level. Where registration is
done at the level of the umbrella fund, then reporting should also be done at the level of the umbrella fund. On the
other hand, where individual sub-funds choose to register for separate GIINs, then reporting should be done on a subfund basis.
The Guidance Notes also updated the provisions for Sponsored Investment Entities, most notably stating that the
Sponsoring Entity (often the Investment Manager) must register the Sponsored Entity (i.e. the fund) with the IRS by
the later of 1 January 2016 or the date that the fund identifies itself as a Sponsored Investment Entity. This is
somewhat disappointing as it does not reflect the more lenient provisions in more recently signed IGAs, whereby
Sponsoring Investment Entities are only required to register the sponsored funds with the IRS by the later of 1 January
2016 or 90 days after a US Reportable Account is first identified. Had these more lenient provisions been reflected in
Irish Guidance Notes, it would have meant that there would be no requirement to register a sponsored Irish fund for a
GIIN unless it had US Reportable Accounts. Notably, the 90 day provision has been introduced by Revenue in the case
of Sponsored Controlled Foreign Corporations. We await clarification from Revenue as to whether this provision will
also be extended to Sponsored Investment Entities.
Due Diligence
Under the IGA, Reporting Irish Financial Institutions are required to apply due diligence procedures to identify and
report certain information on US Reportable Accounts and accounts held by Non-Participating Financial Institutions.
The Guidance Notes provide a useful update which is intended to ease the burden of documenting investors who
maintain accounts in multiple funds serviced by the same Transfer Agent. Transfer Agents may now obtain one set of
FATCA due-diligence documentation for an investor to validate the same investor’s status in all funds serviced by that
Transfer Agent. This is in line with customer identification requirements and practices under AML/KYC.
With respect to self-certifications used by Financial Institutions in identifying US Reportable Accounts, the Guidance
Notes state that such self-certifications can be in any format and includes the use of withholding certificates. This is a
useful clarification for Financial Institutions who would prefer to use more simplified self-certification forms for their
investors or accountholders rather than relying on US W-8/9 Forms, for example.
Page 3
Reporting
Once the due diligence has been completed, and the Reporting Irish Financial Institution has identified its US
reportable accounts, information needs to be reported. The Guidance Notes include a useful timetable demonstrating
the phased in approach to Reporting over the next three years. They also contain a link to the IRS Schema and provide
details on the transmission of the report to Revenue via Revenue’s Online Service (“ROS”). Reporting can be done in
US Dollars or in the functional currency of the Financial Account.
The draft Guidance Notes had stated that the IRS may contact Financial Institutions directly in the case of minor
errors. This has now been removed, and the updated Guidance Notes state that where reporting errors are discovered
by the IRS, the IRS will contact Revenue directly who will liaise with the Financial Institution to resolve the issue.
Recent FATCA Signatories
The following countries have signed IGAs with the US since our June edition:
•
•
•
•
•
Israel (signed Model I IGA 30 June 2014)
Latvia (signed Model I IGA 27 June 2014)
Lithuania (signed Model I IGA 26 August 2014)
Poland (signed Model I IGA 07 October 2014)
Sweden (signed Model I IGA 08 August 2014)
Also since June, the following jurisdictions have reached agreement in substance with the U.S. regarding the terms
of the IGA and have agreed to be treated as having a Model I IGA in place (beginning on the date included in
parenthesis):
•
•
•
•
•
•
•
•
•
•
Algeria (30June 2014)
Anguilla (30 June 2014)
Bahrain (30 June 2014)
Cabo Verde (30 June 2014)
Greenland (29 June 2014)
Haiti (30 June 2014)
Malaysia (30 June 2014)
Montenegro (30 June 2014)
Serbia (30 June 2014)
Ukraine (26 June 2014)
The following jurisdictions have reached agreement in substance with the U.S. regarding the terms of the IGA and
have agreed to be treated as having a Model II IGA in place (beginning on the date included in parenthesis):
•
•
•
•
Iraq (30 June 2014)
Nicaragua (30 June 2014)
Moldova (30 June 2014)
San Marino (30 June 2014)
Now that FATCA is effectively localised for financial institutions in IGA countries, the local regulations and guidance
notes will determine the FATCA requirements for each financial institution.
Page 4
Loan origination now permitted for Irish Alternative
Investment Funds.
Colin Farrell
Tax – Senior Manager
+353 1792 6345
colin.d.farrell@ie.pwc.com
Introduction
The Central Bank of Ireland has recently updated Irish regulation to permit asset managers to set up Irish loan
originating funds in the form of Irish QIAIFs (which are Irish regulated alternative investment funds) with effect from
1 October 2014. The announcement is a positive development for investors, corporate borrowers and asset managers
who have been seeking alternative lending structures to mitigate the impact of the funding gap in Europe arising from
the deleveraging of banks. The announcement also shows Ireland’s commitment to product innovation in order to
meet the needs of the ever evolving asset management industry.
Background
Europe has been slow to recover from the financial crisis, in contrast to the US which has shown clear signs of
recovery. One of the key factors hindering Europe’s recovery is the lack of credit available to fuel business investment
and working capital as well as large scale infrastructure and real estate projects. Banks in Europe and the US are being
squeezed by regulators, politicians and investors but the impact in Europe is more significant as business has
historically been far more reliant on bank funding.
It is estimated that banks in the US account for about 25 per cent of corporate lending compared to about 90 per cent
in Europe. This, coupled with the deleveraging of European banks has led to a significant European debt funding gap.
Non-bank finance has to play a major role in bridging this gap to assist in the recovery of the European economy.
Ireland is seeking to address this issue by allowing regulated Irish fund structures lend to corporate borrowers.
Regulation
Loan originating QIAIFs will be subject to additional regulation which coupled with the existing AIF regulation is
aimed at ensuring that a stable financial environment with adequate investor protection will exist. The proposed
regulation recognises that the key objective of loan originating QIAIFs is to match investors and corporate borrowers
with similar risk and maturity appetites in a regulated environment.
The key areas addressed in the additional regulation include eligible activities, leverage, diversification, liquidity,
credit assessment and disclosure.
Eligible activities
As well as carrying out loan origination activities, a loan origination QIAIF can also partake in loan syndication and
participation as well as treasury management and the use of derivatives for hedging purposes. Other sub-funds
within the QIAIF can have other strategies. Therefore, it is likely that a separate sub-fund would be used for other
“non-loan originating strategies” such as equity/bond investment.
Page 5
Leverage
Additional regulation around leverage seeks to alleviate any concerns around leverage being a potential source of
cyclical vulnerability. The regulation sets a leverage limit on loan originating QIAIFs at a ratio of 1:1 which in
simple terms means a QIAIF with assets of 100 may borrow 100. To the extent that the value of assets decline, the
leverage limit must also be decreased accordingly which will result in the need for regular monitoring of the
leverage limits to ensure that they are in line with market conditions. Limited leverage will also assist loan
originating QIAIFs to become genuine alternative financing platforms for corporates as leverage is likely to
ultimately stem from the traditional banking system which the proposal is seeking to provide an alternative to.
Diversification
The regulation states the QIAIF shall set out in its prospectus a risk diversification strategy which will limit
exposure to any one issuer or group to 25% of the net assets. This is to be achieved within a specified timeframe or
if not achieved, approval is sought from the unitholders to operate at the level of diversification which has been
achieved. Furthermore, lending is restricted to corporate lending and QIAIFs will not be permitted to lend to
individuals, connected parties, other funds, financial institutions or persons intending to invest in equities or other
traded investments/commodities. There are also restrictions around the circumstances where a loan originating
QIAIF can acquire a loan from a credit institution.
Liquidity
Loan originating QIAIFs will be closed ended to mitigate against the risk of investor runs and the implications
thereof. However, there is recognition of the fact that there is a need to align the maturity of certain loan assets in a
diversified portfolio with the return preferences of investors. Therefore, there is scope for a limited redemption
facility within the regulations which enables the QIAIF to invite non-binding redemptions from unit holders and
also to make distributions subject to having sufficient unencumbered assets.
Credit assessment
A key objective of the regulation is to ensure that loan originating QIAIFs have effective credit assessment policies
in place as well as processes and controls to monitor the implementation on such policies. From an investor
protection perspective, it is important that the QIAIF carries out appropriate credit risk due diligence on each
proposed loan prior to entering into a loan agreement as well as the regular monitoring of the overall make-up of
the loan portfolio.
Disclosure
The additional disclosure requirements seek to ensure that the prospectus and sales materials of a loan origination
QIAIF include appropriate warnings which draw attention to the unique risks which arise from loan origination
activity. Furthermore, periodic reports issued by loan originating QIAIFs must include detail of the profile of debt
held, undrawn committed credit lines, loan to value ratio for each loan and other such information which will
provide each investor with an accurate overview of the risk profile of the loan originating QIAIF. All information
must also be made available on a non-discriminatory basis to all investors. Where information is seen as sensitive,
it will be reported directly to the Central Bank of Ireland and not made publicly available.
Summary
With investors struggling to achieve satisfactory yields from traditional bond investment strategies and corporate borrowers
seeking alternative funding from non-bank sources to meet working capital and business development needs, it is not
difficult to see why directly originated loans have become an asset class which is generating significant interest from asset
managers.
The risk profile and maturity of loans required to meet the needs of businesses and real estate/infrastructure projects are
likely to attract borrowers such as pension funds, insurance companies as well as many other professional/institutional
investors. The robust regulation proposed in respect of Irish loan originating funds together with the existing infrastructure
and expertise in Ireland at present means that Ireland is well positioned to promote itself as a domicile of choice for loan
originating funds.
Page 6
•
•
IRISH UPDATES
Central Bank
publishes final rules
on loan originating
QIAIF
In late July 2014 the Central Bank of
Ireland proposed regulation to allow
Irish Alternative Investment Funds
to originate loans for corporate
borrowers. Given the current
funding gap existing in Europe this
is a very welcome development for
corporate borrowers, investors and
asset managers. It is estimated that
while up to 90% of European debt
funding is Bank originated the
figure in the USA is approximately
25%. SME’s who do not have the
required scale to access bond
markets are expected to benefit
from this development.
The Central Bank published the
final rules for the new loan
originating QIAIF in a updated
version of the AIF Rulebook on
September 18th, 2014. This follows
a consultation (CP 85) which closed
on 28 August 2014 and a discussion
paper which issued last year.
The Central Bank’s feedback
statement on CP 85 is available at:
http://web.irishfunds.ie/administra
tor/components/com_civicrm/civic
rm/extern/url.php?u=60449&qid=
973991
The framework for the loan
originating QIAIF is outlined in
Section 4 of Chapter 2 of the AIF
Rulebook. The loan originating
QIAIF must have an authorised
AIFM and key product requirements
relate to:
•
•
•
•
•
•
•
Due diligence by investors
Diversification / eligible
investments
Stress-testing and reporting
Liquidity and distributions
Leverage
Disclosure
Valuation
Prospectus
A number of significant changes and
clarifications were made following
comments by IFIA in its response to
CP 85. These relate primarily to
eligible assets, non-public disclosure
of sensitive information, investor
due diligence and arrangements
with respect to liquidity and
diversification. The application of
the “skin in the game” rules for
banking relationships has also been
clarified such that these do not
apply to loans acquired at arm’s
length on the secondary market.
The Central Bank intends to begin
accepting applications for loan
originating QIAIFs in the very near
future.
AIFMD
AIFMD Q&A 10th Edition
Released
This update reflects clarifications
made by a number of regulators and
the ESMA.
Issues addressed include the
substitution of AIF units with
payment in shares and issues
related to the governing law of the
AIFM agreement. Disclosures
concerning leverage and
remuneration policies are also
covered.
AIFMD Reporting Guidelines
Guidelines and templates along with
guidance notes have been published
by the Central Bank for AIFM
regulatory reporting. The guidelines
contain information on reporting
requirements, what must be
submitted, procedures for a
submission, prudential returns and
minimum capital requirements
report as well as other topics.
The guidelines are available at:
http://www.centralbank.ie/regulati
on/industrysectors/funds/aifmd/Documents/AI
FMD%20Reporting%20Guidance%
20v1.0.pdf
AIFM Amendment Regulations
A number of amendments to Irish
Law have been made as a result of
certain updates to the European
Union (Alternative Investment Fund
Managers) (Amendment)
Regulations 2014.
The UCITS Regulations and the
AIFM Regulations have been
amended with respect to the
following issues:
• The implementation of the
Credit Ratings Agencies
Directives in Irish Law.
• The requirement for nonEU AIFM’s to apply to the
Central Bank for approval.
• Compliance with certain
requirements of MiFID
For full details and a list of all the
issues please see:
http://www.irishstatutebook.ie/pdf
/2014/en.si.2014.0379.pdf
The Q&A can be viewed here:
http://www.centralbank.ie/regulati
on/marketsupdate/Documents/AIF
MD%20QA%2010%20Final%20%2
0clean.pdf
Credit granting, monitoring and
management
Page 7
EMIR - Treatment of
FX Forwards FAQ.
Several European Regulators have
treated FX Forwards under EMIR
differently across the EU. This has
arisen due to different local
implementations of the MiFID
Directive.
Because of these differences the
European Commission has voiced
its concern regarding the lack of a
common definition of an FX
Forward. In July ESMA published a
letter on the matter. The letter states
the need for a definition of financial
FX instrument in EMIR reporting.
Unfortunately for legal reasons the
European Commission is unable to
develop this definition using an
implementation act. (It is expected
that MiFID II will provide this
definition in early 2017). While the
letter does not provide a formal
definition of an FX Forward it does
however set out the following “broad
consensus” on the definition of a FX
Spot Contract.
•
A settlement period of T+2
will be used to define FX
spot contracts for all major
and European currency
pairs.
•
For all other currency pairs
a “standard delivery period”
will be used.
•
In situations where
contracts for the exchange
of currencies are used for
the sale of a transferable
security then the settlement
period applying will be the
one associated with that
security subject to a
maximum of 5 days.
•
FX contracts used as a
means of payment for goods
or services will be
considered a FX spot
contract.
In the light of this letter the Central
Bank of Ireland has updated its
EMIR FAQ page.
The FAQ outlines under what
conditions and jurisdictions the FX
transactions must be reported.
http://www.centralbank.ie/regulati
on/EMIR/Pages/FAQs.aspx
ICAV – a new Irish
Corporate Vehicle
The Irish Collective Assetmanagement Vehicle Bill was
published by the Department of
Finance on July 29th and is expected
to be enacted before the end of
2014. The ICAV is a new type of
investment vehicle designed
specifically for both UCITS and
AIFs. As a bespoke corporate
investment fund vehicle a fund
established as an ICAV will have the
advantage that it will not be
impacted by amendments to certain
pieces of European and domestic
company legislation which are not
relevant or appropriate to a
collective investment fund.
The ICAV will have a board like a
PLC but the memorandum and
articles of association will be
combined into a single document
known as an Instrument of
Incorporation. ICAV’s will be
supervised by the Central Bank of
Ireland and have the additional
advantage of being able to elect its
classification under US check-thebox taxation rules allowing them to
be treated as transparent or flowthrough entities.
Existing funds established as plcs
will have the option to convert to
ICAV status. However, it will not be
possible to use the ICAV conversion
procedure in respect of an existing
UCITS or AIF unit trust, investment
limited partnership or common
contractual fund.
The ICAV Bill moved to its second
stage in the Irish parliament on
9/10/14 and is available here:
http://www.oireachtas.ie/viewdoc.a
sp?DocID=26838&CatID=59
Fitness and Probity
Regime
Amendments have been made by
the Central Bank of Ireland with the
introduction of 6 new Pre-Appoval
Controlled Functions (PCFs).
The new PCFs are:
• Chief Operating Officer
(PCF-42) for all regulated
financial service providers;
• Head of Claims (PCF-43)
for Insurance Undertakings;
• Signing Actuary (PCF-44)
for Non-Life Insurance
Undertakings and
Reinsurance Undertakings;
Head of Client Asset
Oversight (PCF-45) for
Investment Firms;
• Head of Investor Money
Oversight (PCF-46) for
Fund Service Providers;
• Head of Credit (PCF-47) for
Retail Credit Firms.
The Amending Regulation also
clarifies that regulated financial
service providers cannot avail of the
outsourcing exemption when
outsourcing PCFs or CFs to certified
persons.
A briefing document has been
issued by the Central Bank and can
be found at:
http://www.centralbank.ie/regulati
on/processes/fandp/serviceprovider
s/Documents/Guidance%20on%20
Fitness%20and%20Probity%20Ame
ndment%202014.pdf
Page 8
Companies Bill 2012
The Companies Bill 2012 (the “Bill”)
completed Report Stage and Final
Stage in the Seanad on 30
September 2014. The Bill
consolidates 50 year of Irish
legislation and EU Statutory
Instruments and will make company
law requirements easier to
understand. The Bill creates several
new types of companies, amongst
them are Company Limited by
Shares (CLS), Designated Activity
Companies (DAC).
The Bill is expected to come into
force on June 1st 2015 and following
this date all companies will have 18
months to choose between
converting to a CLS or a DAC (or
another suitable company type such
as a public limited company) to
ensure that its business needs are
met in a legally robust manner.
Companies not making any election
will be deemed to be have become a
CLS.
It is anticipated that private
companies regulated by the Central
Bank of Ireland (i.e. UCITS
management companies, AIFMs,
insurance companies and
companies registered under the
European Communities (Markets in
Financial Instruments) Regulations,
2007 (as amended) or the
Investment Intermediaries Act,
1995) will need to convert to DACs
before the end of the transitional
period.
The Bill streamlines several
procedures. For example, Directors’
common law fiduciary duties have
been codified and Company Law
Offences categorised on a scale of 1
to 4. Also the introduction of new
Summary Approval Procedures will
remove the requirement to go to
Court for certain transactions.
The Bill can be viewed at:
http://www.oireachtas.ie/viewdoc.a
sp?DocID=22537
Management
Company
Effectiveness
On Friday September 19, the Central
Bank of Ireland published
Consultation Paper 86 (CP 86), a
‘Consultation on Fund Management
Company Effectiveness – Delegate
Oversight’, with a closing date for
responses of December 12, 2014.
The CBI in addition to engaging
industry experts on this have carried
out specific reviews of management
companies over recent
months. This work has led to the
following four proposed measures in
the consultation:
1. Delegate oversight guidance
The consultation proposes guidance
for boards on the oversight of
delegates such as investment
managers and distributors.
2. Streamlining designated
managerial functions
There are proposed enhancements
to the existing governance structure
such as rationalising the current list
of 15 designated functions under
AIFMD to six functions. It is also
proposed that UCITS management
companies (and self-managed
UCITS) managerial functions will
similarly be rationalised to six.
To ensure the availability of the
necessary skillsets required to
oversee these functions the CBI are
relaxing their requirement to have
two Irish resident directors. Firstly,
the CBI are defining what Irish
resident means (i.e. that a director
will have to spend at least 110
working days in the country per
annum). Secondly, it will be possible
to replace one Irish resident director
with a director who has the
necessary competencies and who
commits to making themselves
available to the CBI if needed.
4. Rationale for board
composition
Under the proposed regime Boards
will have to document the adequacy
of their combined expertise and
provide a rationale for the Board’s
composition, ensuring they have an
appropriate balance of skills and
competencies. They will also have to
keep the effectiveness of the board
under on-going review.
The full consultation paper CP86 is
available here:
http://www.centralbank.ie/regulati
on/marketsupdate/Documents/CP8
6%20Fund%20Management%20Co
mpany%20EffectivenessDelegate%20Oversight.pdf
3. Irish resident directors
requirement
Page 9
Corporate Governance Code for Fund Service Providers
The Central Bank of Ireland has been a strong advocate of good corporate governance and the ensuing benefits of
transparency and risk mitigation. Recently the CBI has been actively promoting industry adoption of minimum
standards of prudent corporate governance.
In 2012 the CBI published a Corporate Governance Code for the Collective Investment Schemes and has now followed
that with a Corporate Governance Code for Fund Service Providers (the “Code”). The CBI would like to see this Code
adopted by all Fund Service Providers such as Custodians, Administrators and Depositaries.
The Code was developed by The IFIA Corporate Governance group. The Code is not prescriptive but rather sets out
principles and guideline of good corporate governance and oversight. The Code is based on current best international
practices and can be expected to evolve over time.
For the full text see:
http://www.irishfunds.ie/fs/doc/publications/corporate-governace-booklet-8page-web-2.pdf
IFIA – Memorandum of Understanding with China’s AMAC
The Irish Funds Industry Association (IFIA) this week signed a Memorandum of Understanding (MOU) with the Asset
Management Association of China (AMAC) in Beijing.
The agreement is a significant positive step in promoting closer co-operation and better understanding between the
respective industries in China and Ireland. It also encourages and supports greater international capital flows
presenting greater opportunities for investors, and growth for the industries in both countries.
Industry communication, information sharing, and reciprocal relationships are the key highlights in the MOU. This
includes an agreement to promote mutual assistance and the exchange of information in all aspects of the asset
management industry, covering areas such as regulatory developments, and sound practices to improve investor
protection.
Page 10
Cyber attackers turn their focus on hedge funds industry
David M Kelly
Senior Manager
+353 1792 7045
david.m.kelly@ie.pwc.comm
Background
Cyber-attacks against IT systems are now commonplace with daily reports of significant data and financial loss in
government and industry.
The Asset Management industry is not immune from sophisticated cyber-attack targeting and is increasingly
vulnerable to incoming cyber security threats from new directions and adversaries including attacks in the form of
“hacktivism”, corporate espionage, terrorism and criminal activity. Such attacks can cost time, resources and
irreparable reputational harm.
In our experience it is often the case that information security systems in asset management institutions are designed
to meet minimum levels of regulatory or industry compliance rather than to provide effective, proactive cyber security
safeguards to protect against increasing levels of cyber risk.
In our view a more appropriate approach is one that recognises cyber risk management as a complex problem,
requiring executive management engagement, ongoing governance, risk management techniques, threat correlation
and collaboration throughout the organisation. The end objective should be that the organisation becomes “cyber
resilient”.
Our view is supported by the SEC’s Office of Compliance Inspections and Examinations (OCIE) recent announcement
of its intention to conduct examinations of more than 50 registered broker-dealers and registered investment advisers.
The goal of the examinations is to ensure the integrity of the markets and the protection of customer data. The broad
scope of the examinations includes cyber-security governance and proactive identification and assessment of
cybersecurity risks and is aligned with our view that executive teams and boards can no longer afford to view cyber
security as merely a technology problem.
What can be done?
To become cyber resilient asset management organisations need to develop an integrated approach to cyber risk. In
our experience the best approach is one where the executive team takes ownership of cyber risk so that information
security and technology expertise can be combined with business management and risk disciplines with the result that
cyber security becomes embedded in the organisation.
A proven approach to developing cyber resilience capabilities is to establish a cyber risk management programme.
A cyber risk management programme
We recommend that executive management take the following steps when developing a cyber risk management
programme:
1.
Establish cyber risk governance
Page 11
A governance framework is the foundation of a cyber resilient organisation. Establish the framework by allocating
responsibility at an appropriate level, e.g. Head of Risk, Head of Compliance or CIO and ensure that adequate
support is provided to develop the cyber risk management programme and reporting structure. Connections
should be made to other risk programs such as disaster recovery, business continuity, and crisis management.
2. Understand your “cyber boundary”
An organisation’s cyber vulnerabilities extend to all locations where its data is stored, transmitted, and accessed —
by employees, outsource providers and clients. Consider how recent technology developments such as IT
Outsourcing, Cloud Computing, Big Data, Analytics and Social Media may have extended your cyber boundary.
3. Identify your critical business processes and assets
Determine what comprises your most valuable revenue streams, business processes, assets, and facilities,
understand where they are located and who has access to them.
4. Identify and Assess Cyber Threats
Threat analysis efforts can be disjointed when environments are spread across several functions, physical locations
and systems. Establish a robust threat analysis capability that is built on shared intelligence, data and research
from internal and external sources. Focus on three primary functions: collection and management, processing and
analysing, and reporting and action.
5.
Plan
Develop action plans that can be invoked in the event of a cyber attack. The action plans should say who should
take action, what their responsibilities are and exactly what they should do.
Aren’t we doing this already?
You may have some elements of a cyber risk management programme in place, however, in our experience, asset
management organisations are at various levels of cyber resilience maturity for example:
Area of Focus
Lagging
On Par
Leading
Cyber Risk
Governance
Limited insight into cyber
risk management
practices.
Embedded in day-to-day
activities.
Cyber Boundary
Unaware of where data
resides. Little knowledge
of third party access to
data.
No differentiation
between non-critical and
critical data. Minimal
restrictions on data
access.
Established a threat-riskresponse framework but
does not view cyber risk
governance as a
competitive advantage.
Systems are designed to
identify cyber threats at
and within the physical
perimeter.
Understanding of the
importance of data and
appropriate measures to
protect it. Access
reviewed on an annual
basis.
Internal and external
cyber risk assessments
are performed on an
annual basis.
Asset
Identification
Identification
and Assessment
Cyber threat monitoring
is disjointed and
ineffective.
Cyber risk management
program includes thirdparty relationships and
data flows.
The organisation knows
what data is critical,
where it is located, and
who has access at all
times.
Appropriate assessments
of vulnerabilities to
internal and external
cyber risks are
continuously performed.
and it may be necessary to complete a gap analysis to identify any activities that should be undertaken to raise
your cyber resilience capability to appropriate levels.
Page 12
Hedge Fund Administrators Face Cost Pressures
Ken Owens
Asset Management Partner
+353 1792 8542
ken.owens@ie.pwc.com
Currently in the hedge fund industry over 80% of assets under management are administered by a third party. With
this already high level of outsourcing the industry is maturing, growth potential is limited and the focus is now on cost
reduction.
Hedge fund administration (HFA) demand is triggered primarily by external forces such as the current post-crisis
investor pressure placed on hedge funds to outsource their books and records. Organic growth in hedge fund
administration will be challenging as firms are forced to compete for a relatively static group of clients.
Any increase in demand that does occur is likely to be driven by the competitive forces now shaping the asset
management industry. We’ve found that four trends in particular appear poised to drive new growth in hedge fund
administration (see below).
As these trends take hold, administrators will invariably follow different paths toward growth, many of which will be
influenced by such characteristics as size, ownership structure, and service mix. Small, undercapitalized
administrators may focus on making improvements to both cost efficiency and their core competencies as a way to
increase profit margins.
And well-capitalized administrators, small or large, may pursue one or more of these four growth opportunities.
However, it’s important for well-capitalized administrators to remember that their financial capital will enable the
pursuit of growth, but it will not guarantee the creation of value. Achieving profitable growth and shareholder value
creation will come from a strategy that focuses on creating and sustaining a competitive advantage.
Four Trends to Drive HFA Growth
1. Increased need for regulatory reporting
Demand for regulatory reporting services, such as AIFMD and Solvency II remains strong.
2. Manager and product convergence
Ireland services alternative investment assets representing approximately 40% of global and 63% of European hedge
fund assets. With recent developments on AIFMD the potential for growth in demand for hedge funds administration
through AIFMD is significant.
3. Cost-efficient fee operations
Asset managers are looking to become more cost-efficient in response to pressure from institutional investors.
Administrators may want to develop new services that help asset managers achieve higher levels of operational and
cost efficiency.
4. Expanded outsourcing
Opportunities exist for administrators to offer private equity administration services.
Presently 30% of US private equity administration is outsourced leaving plenty of potential for growth in this area.
Estimated incremental revenue opportunity for the fund administration industry, based on achieving 50%
outsourcing, is $660 to $880 million on an undiscounted basis for the period of 2014 – 2018 in the USA alone. Strong
growth is also expected in Europe in connection with the new AIFMD directive.
Page 13
Hedge Fund Administration Industry Analysis
Historically, many hedge fund managers opted to perform most or all administration functions using in-house staff.
However, this model shifted to outsourcing following the wave of investment scandals that surfaced during the credit
crisis. While this was initially driven by investor demands, hedge fund managers have found several benefits to
outsourcing, such as:
• Cost avoidance: eliminating the need to invest manager capital to develop capabilities in non-core functions
• Cost control: the potential to transfer back-office costs from the manager to the fund
• Regulatory complexity: increased sophistication of regulatory reporting
• Transference of operational risk: transitioning the cost of operational errors to a third-party
• Pass-through benefits: benefitting from ongoing capital investments made by hedge fund administration firms in
their platform
• Time-to-market: benefitting from an expanded set of features and functionality offered by HFAs
The confluence of these factors led to a sharp increase in new outsourcing mandates, which fostered an environment
of rapid growth for hedge fund administrators since the start of the economic crisis in 2006.
Constraints on Organic Growth in Hedge Fund Administration
Since 2006, the primary source of growth for HFAs was new back-office outsourcing mandates, however this no longer
represents the most viable path to organic growth. Demand is limited by the following factors.
• Exogenous Demand: Demand drivers for the administration industry are exogenous, meaning they are triggered by
external forces, primarily regulators. As such, achieving growth in the administration industry can be challenging, as
firms are forced to compete for the relatively static group of constituents that buy the industry’s services.
• High Client Switching Costs: For the hedge fund managers that have outsourced back-office operations, the
switching costs, which come in the form of transition costs and business risks, are relatively high. The associated
disruption risks are a major concern for fund managers. Industry experience confirms that managers rarely switch
administrators and the pool of fund managers actively seeking to switch administrators is very limited, fewer than 5%
in fact.
Constrained Growth leading to Price Competition
The limited opportunities for growth have led to increased price competition among Fund Administrators and a
greater desire by fund managers to negotiate lower fees. Since the credit crisis, institutional investors have increased
the rate at which they negotiate lower management and performance fees with hedge fund managers. According to
Deutsche Banks’ Alternative Investment Survey, over 70% of institutional investors reported negotiating fees with
hedge fund managers in 2013. In response, hedge fund managers are reducing their own costs to offset the effect of
management fee compression on their bottom line. Hedge fund administrators are a target of these cost efficiency
initiatives because they often represent a large percentage of a hedge fund manager’s cost structure. There also
appears to be an expectation among Fund Managers that administration charges should decline as assets under
management increase.
The Path Forward for HFAs
The results of our industry analysis suggest that HFAs are at a crossroads. HFAs should consider the following two
options as they formulate their next growth plan: 1) focus on providing new specialized services to hedge fund clients,
or; 2) expand administration capabilities to include new services and/or new client segments.
• Focused Path: HFAs that choose to focus on hedge fund managers should target opportunities to leverage their core
competencies as they develop new specialized services.
• Diversified Path: HFAs looking to diversify should offer expanded services, (e.g., regulatory reporting) and/ or target
new client segments, (e.g., PE/RE managers).
These HFAs should evaluate their competitive position and core competencies to determine whether a transition from
focused to diversified is achievable.
Page 14
EUROPEAN UPDATES
breakdown and percentage
volume for derivatives traded on
regulated markets and OTC
AIFMD Update
Reporting guidelines go live
ESMA published the official
translations of its Guidelines on
reporting obligations under
AIFMD on 8 August 2014.
Member State regulators then
had two months to confirm their
compliance with the guidelines or
to explain why they have chosen
not to comply. Presently 20 states
have transposed the directive in
to local legislation, 8 more are in
progress and only 2 remain
outstanding.
Most firms will not need to
complete their AIFMD reporting
until January 2015. For example,
if a firm was authorised in Q3
2014, its first reporting period
under the ESMA guidelines will
relate to Q4 2014 – the first full
quarter after it is authorised.
ESMA updated Q&A on
AIFMD Applications
Published
This Q&A question, published in
September, replaces the last
version from July 2014.
The aim of this Q&A is to clarify
issues relating to the application
of the AIFMD. It is hoped that
this publication will lead to a
more uniform implementation of
the Directive and clear up any
issues surrounding the AIFMD
rules.
The latest additions deal with,
amongst other topics, reporting to
national competent authorities
and depositaries.
Regarding metrics to be reported
to national competent authorities
clarification is given as to the
acceptable numerator to use in
statistics such as geographical
exposure, investment strategy
markets. Reporting requirements
surrounding liquidity ratios and
following liquidation of the AIF
are also explained. Numerous
cash flow queries are answered in
the Depositaries section.
http://www.esma.europa.eu/syst
em/files/20141194_qa_on_aifmd.pdf
ESMA issues
revised guidelines
on ETF’s.
The new guidelines concern the
clear identification of UCITS as
either ETF or non-ETF funds. For
Exchange Traded Funds the term
“UCITS ETF” must form part of
Page 15
the identifier and also appear in
the Prospectus, Key Information
Document and all marketing
materials.
Other points outlined in the
document include:
•
•
•
The Prospectus must
state clearly, if applicable,
how the Net Asset Value
is calculated and the
frequency of these
calculations.
If the UCITS ETF is
actively managed then
this must be clearly
stated in all
documentation and the
underlying goal must also
be specified.
Where units purchased
on the Secondary Market
are not redeemable
directly from the fund
then a mandatory
warning must be placed
in the Prospectus and
marketing information.
The precise text is
outlined in the guidelines
below.
The guidelines are available here:
http://www.esma.europa.eu/cont
ent/Guidelines-ETFs-and-otherUCITS-issues-0
Financial
Transaction Tax
Over the summer months some
proposals have been made
regarding possible means of
collecting the tax.
At a working party meeting in
July a number of documents were
produced by the Commission and
discussed by the Member States:
Firstly, the Commission delivered
a presentation on the following
potential FTT collection methods:
(i) Self-administration - each
Financial Institution determines
pays and reports on FTT - similar
to Belgium's tax on stock
exchange transactions.
(ii) Delegation model - similar to
US QI regime.
(iii) Central clearing / settlement
- similar to UK and French stamp
duties.
(iv) Central utility regime comparable to reporting under
Mifid and EMIR.
highlighted that getting an
agreement on the FTT will be a
priority for their presidency. As
part of his political program for
his 5 year term, the newly elected
Commission President, and
former Luxembourg Prime
Minister, Jean-Claude Juncker
has also made a commitment to
introduce the FTT. Despite such
political goodwill, agreement on
fundamental issues remains
elusive and while a further
political statement is expected at
year end, agreement on key issues
may not be forthcoming.
Secondly, the Commission
released a room document on the
meaning of 'shares and some
derivatives' the phrase used in the
joint statement. The paper
presents a detailed overview of
the various categories of shares,
shares substitutes and derivative
contracts which could possibly
fall under the scope of the tax.
Finally, the Commission released
a room document on issuance
and / or residence as the basis for
the tax. The Commission
envisages adding elements from
the issuance principle in order to
strengthen the anti-relocation
provisions of the residence
principle and make additional
transactions taxable. The
Commission also considers that
applying different principles to
different products is not viable
and it would increase the
relocation risk and undermine the
objective of having a harmonised
FTT framework.
Little progress on reaching
agreement was reported from the
working party meeting held on 25
September.
In summary, the status of the EU
FTT remains as fluid now as it
was in our last update. The
Italians have assumed the
Presidency of the Council (1 July
until 31 December 2014) and have
Page 16
Statutory Audit
New legislation to improve the
quality of statutory audit across
the EU has now entered into
force. Key measures include
strengthening the independence
of statutory auditors, making the
audit report more informative,
and improving audit supervision
throughout the Union. Stricter
requirements will apply to publicinterest entities including all
listed funds. The new legislation
will become applicable in mid2016.
The European Commission has
published the following Q&A
regarding the proposed changes
to the European Statutory Audit,
topics covered include rotation of
the auditor and limits on fees for
non-audit services.
http://ec.europa.eu/internal_ma
rket/auditing/docs/reform/1409
03-questions-answers_en.pdf
In connection with this
consultation you may also wish to
view the Irish Department of
Jobs, Enterprise and Innovations
consultation on the matter
available here.
http://www.djei.ie/commerce/co
mpanylawlegislation/publications
.htm
Cross Border
Mergers
Consultation
The European Commission is
launching a consultation on
cross-border mergers and
divisions in order to collect
information, which would allow
the Commission to assess the
functioning of the existing EU
legal framework for cross-border
operations of companies and any
potential need for changes in the
current rules. It follows the 2012
Action Plan on European
company law and corporate
governance, which announced
that the Commission would
consider the appropriateness of
amendments to improve the
existing Directive 2005/56/EC on
cross-border mergers and a
possible initiative to provide a
framework for cross-border
divisions of companies.
Consultation and submission
details are available at:
http://ec.europa.eu/eusurvey/ru
nner/cross-border-mergersdivisions?surveylanguage=en
PRIIPS Update
Back in July 2012, the EU
Commission issued proposals for
a regulation on Key Information
Documents (KID) for packaged
retail and insurance based
investment products (PRIIPS). In
April of 2014, the European
Parliament adopted the PRIIPS
Regulation which will see the
provision of a KID on a range of
investment products.
The objective of the KID is to
provide retail investors with
better information on the features
and associated risks of the
investment products. The
standardisation of required
information in the KIDs will
make it easier for investors to
inform themselves regarding
PRIIPS products and make more
informed comparisons and
investment decisions. The KID
will also ensure a level playing
field between product
manufacturers and retailers.
The PRIIPS proposal aims to
improve transparency in the
investment market for retail
investors. The proposal aims to
ensure that retail investors are
able to understand the key
features and risks of retail
investment products and to
compare the features of different
products, whilst ensuring a level
playing field between different
investment product
manufacturers and those selling
those products.
The KID should be written in
non-technical language and is
required to be a stand alone
document which allows the
investor to inform themselves
sufficiently regarding the product
concerned without having to
resort to additional sources of
information. The proposed KID
regulation is similar in concept to
the already existing UCITS KID.
The Joint Committee of the
European Supervisory Authorities
(EBA, ESMA and EIOPA) recently
(10th October) released its 2015
Work Programme. Consumer
Protection and Cross-Sectoral
Risk Analysis have been assigned
high priority for the coming year.
ESMA will develop draft
Regulatory Technical Standards
(RTS) concerning disclosures for
PRIIPS and on the content and
presentation of the Key
Information Document (KID).
The timing of the delivery of the
KID and any revisions will also be
considered. EIOPA has been
instructed to provide technical
advice relating the PRIIPS KID
Regulations. The Regulation is
expected to come into force
before the end of 2014 and
become applicable by the end of
2016.
See the following link for the
Commissions advice request to
EIOPA:
http://ec.europa.eu/internal_ma
rket/finservicesretail/docs/investment_products
/20140730-request-eiopaadvice_en.pdf
Page 17
UCITS V Update
Directive Published
The UCITS V Directive was
published in the Official Journal
on 28 August 2014. The main aim
of UCITS V is to increase investor
protection and avoid conflicts of
interest.
It introduces new requirements in
three areas:
•
•
•
remuneration – setting
out how fund managers
and risk takers are paid
their bonuses and how
remuneration
information should be
disclosed in fund
accounts
depositaries –
introducing strict rules
on who can be appointed
as a depositary and the
losses they are
responsible for while
assets are held in custody
sanctions – setting
minimum fines
and sanctions for UCITS
managers that breach the
UCITS Directive. The
remuneration and
depositary requirements
largely build on AIFMD.
Many UCITS managers
have an AIFM in their
group, so for them these
new requirements should
mean extending existing
implementation
programmes rather than
having to start afresh. But
some of the rules differ
from AIFMD, so fund
managers should not
assume that they can just
apply AIFMD style
requirements to their
UCITS funds. The new
Directive entered into
force on 17 September
2014. Member States
must implement the new
rules from 18 March
2016.
While UCITS-V does not recast
UCITS IV it does however contain
amendments to UCITS IV and
therefore both regulations need to
be read together. A summary and
checklist of UCITS V versus
UCITS IV amendments and
additions has been published by
AIMA at the following address:
http://www.aima.org/objects_sto
re/ucits_v_summary__summary_for_members.pdf
the event of its insolvency.
ESMA’s proposals include the
following steps to be taken by the
third party:
•
•
The text of UCITS V is available
at:
http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CEL
EX:32014L0091&from=EN
UCITS V – ESMA
Safekeeping and
Independence Consultation
On 26 September, the European
Securities and Markets Authority
(ESMA) issued a 59-page
consultation paper on draft
technical advice (delegated acts)
under the UCITS V Directive
outlining how it intends to
strengthen the existing depositary
regime. ESMA’s consultation
seeks stakeholders’ views on
proposals in two areas related to
the depositary function:
insolvency protection when
delegating safekeeping and
independence requirements. The
consultation closed on October
24th.
The consultation covers two
areas:
1.Delegating of safekeeping
UCITS V requires that where
custody functions are delegated to
a third party, all necessary steps
are taken to ensure that the assets
the third party holds in custody
are unavailable for distribution in
•
•
verify that the applicable
legal system recognises
the segregation of the
UCITS’ assets from those
of the third party (which
is not located in the EU)
and that of the
depositary;
recognise that the UCITS’
segregated assets do not
form part of the third
party’s estate in case of
insolvency and are
unavailable for
distribution among or
realisation for the benefit
of creditors of the third
party (if the latter is not
located in the EU);
always maintain accurate
and up-to-date records
and accounts of UCITS’
assets that readily
establish the precise
nature, amount, location
and ownership status of
those assets;
maintain appropriate
arrangements to
safeguard the UCITS’
rights in its assets and
minimise the risk of loss
and misuse.
2. Independence proposals
UCITS V provides that both the
UCITS management company
and its depositary need to act
independently and solely in the
interest of the fund and its
investors. In order to implement
this independence requirement,
ESMA proposes a combination of
measures based on i)
management/governance and ii)
structural links. Some of these are
aligned with existing
requirements in Ireland, e.g.
prohibition on common board
Page 18
membership between the UCITS
management company and the
depositary. ESMA is also
considering prohibitions on:
•
•
the management
company having a direct
or indirect holding in the
depositary or vice-versa;
the management
company and the
depositary being included
in the same group for the
purposes of consolidated
accounts.
A second option would allow the
above, subject to further
independence safeguards where
these situations arise.
ESMA intends to finalise this
technical advice to the European
Commission by November 2014.
See the following link for
additional details:
http://www.esma.europa.eu/cons
ultation/Consultation-delegatedacts-required-UCITS-V-Directive
EMIR Updates
Central Clearing
Consultation
In July ESMA launched a first
round consultation process for
the central clearing of certain
OTC derivatives in the EU.
Stakeholders views were sought
regarding the proposed technical
standards for the clearing of
Interest Rate Swaps and Credit
Default Swaps which will be
developed under EMIR.
ESMA launched this consultation
with the goal of reducing systemic
risk for certain OTC derivatives
classes. Central Clearing Houses
will be authorized by European or
Third Country National
Competent Authorities and
certain classes of OTC Derivatives
will then be obliged to use these
central clearing facilities. EMIR
will outline a process by which
the relevant classes will be
identified.
http://www.esma.europa.eu/syst
em/files/ccps_authorised_under
_emir.pdf
The current draft Regulatory
Technical Standards propose
central clearing for the following
IRS classes:
Updated EMIR FAQ Issued
by the European
Commission
Basis swaps,
Fixed-to-float interest rate swaps,
Forward rate agreements,
Overnight index swaps.
For CDS:
European untranched index CDS.
For further information,please
see:
http://www.esma.europa.eu/new
s/Press-release-ESMA-definescentral-clearing-interest-rateand-credit-default-swaps
IRS Consultation Paper:
http://www.esma.europa.eu/syst
em/files/esma-2014-799_irs__consultation_paper_on_the_cle
aring_obligation_no__1____.pd
f
CDS Consultation Paper:
http://www.esma.europa.eu/syst
em/files/2014-800.pdf
Central Counterparties
Listing
ESMA has added BME Clearing
to its list of authorised central
counterparties (CCPs) under the
European Markets Infrastructure
Regulation (EMIR).
For a full list of Central
Counterparties authorised to offer
services and activities in the
Union please see:
In July the latest EMIR (Part IV)
FAQ was issued. Updates
concerning segregation
requirements for non-EU clearing
members of EU CCP’s.
The FAQs here is available here:
http://www.esma.europa.eu/syst
em/files/2014-815.pdf
Money Market
Funds
US Reforms
On July 23rd the SEC adopted
it’s MMF Reform. The final
reforms combines approaches set
forth in the SEC's proposal last
summer to: (1) require
institutional prime MMFs to float
their Net Asset Values (NAV) and
(2) provide tools to all MMF
boards to discourage and prevent
runs by investors through the use
of redemption fees and gates. A
key necessity for reaching the
SEC's 3-2 vote in favour of the
rule was the Treasury
Department's and IRS's
concurrent issuance of rules
mitigating the tax compliance
costs for institutional prime
MMFs investors.
For further discussion of the key
impacts of the reform please see:
http://download.pwc.com/ie/pub
s/2014-flash-news-10-key-pointsfrom-the-secs-final-us-mmfrule.pdf
Page 19
EU Regulation Proposals
The EU’s Economic and Financial
Affairs Council (ECOFIN) is
scheduled to meet on December
9th to discuss General approach
on the proposed Regulation on
Money Market
Funds.
The EU’s proposal to regulate
Money market Funds is available
here:
http://ec.europa.eu/internal_ma
rket/investment/money-marketfunds/index_en.htm#130904
http://www.esma.europa.eu/cont
ent/Review-CESR-guidelinesCommon-Definition-EuropeanMoney-Market-Funds
Reduce MMF reliance on
Credit Rating Agencies
ESMA published a review of the
CESR guidelines on a Common
Definition of European MMFs on
22 August 2014 in which it
assesses whether the existing
CESR guidelines on MMFs are
compliant with the CRA III
prohibition on mechanistic
reliance on a CRA’s credit ratings.
MMFs must perform their own
assessments on the credit quality
of investments to ensure that they
are of an appropriate quality. The
assessments should still take into
account any external credit
ratings while at the same time
avoiding exclusive reliance on
them, which had previously been
permitted. A manager should
make an independent
reassessment after any significant
downgrade, subject to specific
criteria. ESMA wants national
regulators to take note of its
amendments to the CESR
guidelines, although as the
guidelines are not being reissued
regulators will not need to
formally comply or explain again.
ESMA plans to review compliance
across the EU to determine any
outliers.
Page 20
Contacts
The Regulatory Advisory Services
team are happy to address any
questions you might have on any of
these topics.
Regulation Specialist
Ken Owens
+353 1 792 8542
ken.owens@ie.pwc.com
Corporate Governance
Sarah Hayes
+353 1 792 7323
sarah.n.hayes@ie.pwc.com
ETFs
Aoife O’Connor
+353 1 792 8527
aoife.oconnor@ie.pwc.com
Fund Distribution
Anne-Marie Sharkey
+353 1 792 6273
anne-marie.sharkey@ie.pwc.com
Hedge Funds
James Conaghan
+353 1 792 8522
james.conaghan@ie.pwc.com
Loan Funds
Colin Farrell
+353 1 792 6345
colin.d.farrell@ie.pwc.com
UCITS
David O’Connor
+353 1 792 5366
david.a.oconnor@ie.pwc.com
Money Market Funds
Sarah Murphy
+353 1 792 8890
sarah.murphy@ie.pwc.com
Suzanne Senior
+353 1 792 8547
suzanne.senior@ie.pwc.com
Private Equity
Catherine Chambers
+353 1 792 8975
catherine.chambers@ie.pwc.com
Joe O’Neill
+353 1 792 7501
joe.j.oneill@ie.pwc.com
Real Estate
Ilona McElroy
+353 1 792 8768
ilona.mcelroy@ie.pwc.com
Tax
Rosaleen Carey
+353 1 792 8756
rosaleen.carey@ie.pwc.com
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www.pwc.ie/assetmanagement
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2014 PricewaterhouseCoopers. All rights reserved. PwC refers to the Irish member firm, and may sometimes refer to the PwC network.
Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.