Ireland-US Agreement on the Implementation of FATCA

Irish Finance Minister, Michael Noonan, has confirmed that negotiations with the US in relation to a new inter-governmental agreement ("IGA") have now been concluded, and as a result Ireland will be one of the first jurisdictions to enter into a new IGA with the US to implement the Foreign Account Tax Compliance Act ("FATCA"). These bilateral agreements will aid the US in tackling tax evasion and improving international tax compliance.

It is anticipated that, under the Ireland-US IGA, Irish financial institutions will be able to avoid the need to enter an individual agreement with the IRS and instead will be able to report directly to the Irish Revenue Commissioners in relation to financial accounts held in Irish financial institutions by US persons. The Irish Revenue Commissioners will then share this information with the IRS under the existing double tax treaty arrangements.

Ireland's early agreement with the US on FATCA will allow Irish financial institutions to avoid the need for US withholding tax being imposed on US source payments to them. The IGA will ensure that the Irish financial services industry remains highly competitive internationally and is likely to represent a competitive advantage over those jurisdictions which have not yet reached such an agreement or are unwilling or unable to do so as the compliance burden and withholding tax risk will be reduced. Enabling provisions for the Irish tax code application of the IGA will be contained in the Finance Bill which is expected to be released in early February 2013.

New REIT Legislation in Ireland

The Irish Minister for Finance has announced in his Budget speech of December 5th 2012 that new legislation to provide for Real Estate Investment Trusts ("REITs") will be enacted in Ireland shortly. The Minister stated:

"In order to attract new investment, I will provide for the establishment of Real Estate Investment Trusts, which allow for investors to finance property investment in a risk diversified manner."

It can be noted that Ireland, unlike the US, Germany and the UK, has not had a specific REIT regime to date. Accordingly, collective investment in Irish property has typically been structured through unregulated limited partnership structures established under the Limited Partnerships Act 1906, or else through collective investment schemes authorised by the Central Bank of Ireland, typically approved as non-UCITS Qualifying Investor Funds (QIFs). Further details regarding such structures are available in this Guide.

While the details of the Irish REIT regime remain to be clarified until the release of the Finance Bill in early February 2013, the annex to the Budget speech does give further outline information on what is proposed and as a result it seems likely that the requirements applicable to REITs in the UK will generally also be applicable to the new Irish structure. These include:

  • a requirement for the vehicle to be listed and adhere to Stock Exchange listing rules;
  • to be widely held (maximum of 10% owned by any one investor);
  • to be subject to borrowing restrictions and risk diversification requirements;
  • an obligation to distribute a substantial percentage of income to investors on an annual basis; and
  • being tax neutral vehicles.

Given the conditions generally applicable to REITs, including those set out above, while this new structure should encourage investment in property by facilitating investment from investors seeking income yielding investments, in many cases the existing regulated and unregulated structures will continue to be the most suitable vehicles for investments in property which do not fit the profile for a REIT. For example, investments in development land or where other applicable conditions cannot, or are not proposed to be, met such as the limitation on leverage.

IFIA Opens Representative Office in Sao Paulo, Brazil

The Irish Funds Industry Association (the "IFIA") in conjunction with IDA Ireland, has opened a representative office in Sao Paulo, Brazil.

This is the 11th of such representative offices to be opened worldwide and demonstrates the industry's focus on establishing a global presence in key jurisdictions.

Brazil is becoming an increasingly important jurisdiction for the asset management industry and Brazilian domiciled promoters currently manage in excess of €10 billion in Irish funds.

Further highlighting the Irish fund industry's strengths are figures released from the European Fund and Asset Management Association ("EFAMA"), which demonstrate that during the first half of 2012 Ireland attracted 45% of all new investments into UCITS. Irish funds experienced growth across every asset class in 2012. This influx of €45 billion in new UCITS monies was the highest recorded in any jurisdiction and bucked a trend that saw net outflows from many jurisdictions. Based on these figures, Ireland is likely to be the fastest growing domicile for UCITS again in 2012 as a whole.

CENTRAL BANK REGULATORY UPDATES

Central Bank AML Letter

On 12 October 2012, the Central Bank of Ireland (the "Central Bank") issued a "Dear CEO" letter to credit and financial institutions (together the "Firms") in relation to compliance with the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 ("CJA 2010").

This follows inspections carried out by the Central Bank to monitor anti-money laundering ("AML") compliance by Irish firms (including investment funds and their service providers).

The letter gives an overview of potential control weaknesses and failures identified during the Central Bank's inspections. Additionally, the Central Bank outlines actions which it expects Firms to take should such circumstances be identified and reminds Firms of the wider context of Ireland's membership of the Financial Action Task Force.

Improvements to the Online Reporting System

On 28 May 2012, the Central Bank of Ireland (the "Central Bank") issued Consultation Paper 59 with respect to proposed changes to the regulatory reporting requirements as they apply to Irish authorised collective investment schemes ("CIS"). The Central Bank proposed that all reports required to be filed with it will now be submitted through the Online Reporting System ("ONR").

The Central Bank has now introduced improvements to the ONR which took effect on 29 November 2012 in order to improve the functionality of the system for financial service providers.

The main enhancements are as follows:

  1. Automated Filing Reminders and Acknowledgements

    • firms can now manage their own reminders; and
    • every return has a maximum of 2 reminders for pre and post filing.

  2. Self-Service Password Reset Facility

    • the password can be reset by answering a series of questions.

  3. Unlock Requests and Query Forms

    • ability to unlock requests;
    • ability to submit requests from a drop down menu;
    • ability to add detail to queries; and
    • email notifications will confirm receipt.

  4. An ONR User Manual has issued to provide guidance to authorised firm personnel who use the ONR to submit and/or view their returns.

A copy of the User Manual can be found here.

Transfer of Transparency Directive Supervision from ISE

Pursuant to the Transparency (Directive 2004/109/EC) Regulations 2007 (the "Regulations") which were applicable since 13 June 2007, the Central Bank of Ireland (the "Central Bank"), as competent authority under the Regulations, delegated certain functions to the Irish Stock Exchange (the "ISE").

In compliance with European law that this delegation must come to an end by 19 January 2013, the Central Bank and the ISE have now announced that the delegation arrangement has ceased.

The Central Bank is now accordingly the sole relevant competent authority for these purposes.

Central Bank Issues New Prospectus Handbook

On 8 November 2012, the Central Bank of Ireland (the "Central Bank") issued a revised Prospectus Handbook (the "Handbook"). The Handbook is intended for use by those issuers of transferable securities which are subject to Directive 2003/71/EC, otherwise known as the Prospectus Directive. The Handbook is also relevant for those entities that act as service providers to such issuers, be they law firms, listing agents, stockbrokers or investment banks.

The Handbook is divided into three sections. Section One outlines the requirements relating to the structure and content of a prospectus. Section Two details the procedures to be followed when drawing up the prospectus and the subsequent approval and publication of the prospectus. Finally, Section Three provides guidance on the review, approval and publication processes.

In addition, the Handbook incorporates a number of annexes which include materials aimed at providing assistance during the review, approval and publication processes. The revised Prospectus Rules, the applicable submission deadlines as well as template emails, letters and forms are provided.

EUROPEAN DEVELOPMENTS

Cooperation Agreement between Switzerland and EU regarding AIFs

A Cooperation Agreement has been approved between the European Securities and Markets Authority ("ESMA") and the Swiss Financial Market Supervisory Authority ("FINMA").

ESMA negotiated this on behalf of all 27 European Union ("EU") authorities for securities markets regulation in order to fulfil the pre-condition under the Alternative Investment Fund Managers Directive ("AIFMD") to provide for third party access to EU markets and to allow for fund management delegation.

The main aspects of the Cooperation Agreement are:

  • the supervision by the EU and Swiss authorities of fund managers operating on a cross-border basis in the EU and Switzerland; and
  • the exchange and sharing of information, cross-border on-site visits and assistance in the enforcement of legislation, for example the AIFMD.

The Cooperation Agreement will be in the form of a Memorandum of Understanding and will be applicable from 21 July 2013.

ESMA Publishes Waivers From Pre-Trade Transparency Under MiFID

On 15 November 2012, the European Securities and Markets Authority ("ESMA") published a paper (the "Paper") dealing with the waivers available under the Markets in Financial Instruments Directive ("MiFID"). The waivers exempt the operators of regulated markets ("RMs") and multilateral trading facilities ("MTFs") from the requirement to make public the current bid and offer prices, as well as the depth of trading interests, in respect of shares admitted to trading.

The Paper outlines the positions taken by ESMA's predecessor, the Committee of European Securities Regulators ("CESR"), on each of the waivers and ESMA's corresponding opinions.

The Waivers

The following four waivers are available under MiFID:

  1. Reference price systems:

    This waiver is available to systems that determine price by reference to prices generated by other systems. The reference price must be widely published and should be regarded by market participants as being a reliable reference price.
  2. Negotiated trade systems:

    Systems that formalise negotiated transactions are capable of taking advantage of this waiver. In order to do so the transaction must:

    • take place at, or within, the current volume-weighted spread that is reflected in an order book. Alternatively, if the transaction takes place at, or within, quotes of market makers in that share, or in the event that the share is not traded continuously, within a percentage of a suitable reference price set in advance by the operator of a RM or MTF; or
    • be subject to conditions other than the current market price of the share.

  3. Order management facilities:

    This waiver can be utilised when orders are held in an order management facility maintained by a RM or MTF pending those orders being disclosed to the market.
  4. Large-in-scale transactions:

    This waiver is available when an order is considered to be large-in-scale. An order will be deemed as such where it is compared with the normal market size and is found to be equal to or larger than the minimum size or order specified in Table 2 of Annex II of Commission Regulation (EC) No. 1287/2006.

Purpose of the Paper

The Paper is primarily aimed at competent authorities in the hope that it will ensure that when undertaking their supervisory activities, they do so in accordance with the opinions of ESMA. In addition, it is hoped that the examples given in the Paper for each of the four waivers will provide some clarity to the competent authorities, as well as assistance when they look to develop new trading functionalities.

It can be noted that the Paper endorses the decisions previously adopted by CESR in respect of the waivers and will be subject to continuous update as ESMA formulates new opinions.

ESMA Guidelines on Repo Arrangements for UCITS

The European Securities and Markets Authority ("ESMA") has published its Final Report on Guidelines on repurchase and reverse repurchase agreements (the "Final Guidelines") for UCITS. The Final Report which includes a Feedback Statement, contains an annex detailing the Final Guidelines.

The main aim of the Final Guidelines is the protection of investors through the introduction of requirements on using repurchase and reverse repurchase agreements.

The main features of the Final Guidelines are as follows:

  1. A UCITS that enters into a repurchase agreement should be able to recall at any time the assets which are subject to these arrangements or to terminate the agreement;
  2. A UCITS that enters into a reverse repurchase should be able to recall at any time the full amount of cash or terminate the agreement on either an accrued or a mark-to-market basis. If the cash is recalled on a mark-to-market basis, the value should be used for the calculation of the net asset value; and
  3. Fixed-term repurchase and reverse repurchase agreements that do not exceed 7 days, are considered to be arrangements that allow the assets to be recalled at any time by the UCITS.

The Final Guidelines will be incorporated into the Report and Consultation Paper which focused on UCITS Exchange-Traded Funds ("ETFs") and other UCITS issues (ESMA/2012/474) which was published on 25 July 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.