Ireland: Asset Management And Investment Funds Group Legal And Regulatory Update

Last Updated: 3 June 2019
Article by Arthur Cox

Central Bank Outsourcing Conference Hears That "Boards Must Get to Grips with Outsourcing Risks"

As reported in our April update, outsourcing is area of key focus for the Central Bank and other global regulators. On 30 April, the Central Bank hosted an industry conference ("Conference") aimed at informing its ongoing discussions relating to outsourcing trends, key issues and the appropriate regulatory response. The conference follows from the Central Bank's Discussion Paper on Outsourcing in the financial sector ("DP8"), which was issued in November 2018. In DP8, in addition to seeking stakeholder views on some key risks and evolving trends associated with outsourcing across the sector, the Central Bank also highlighted its findings resulting from past supervisory engagement and a survey that it undertook in 2017 on outsourcing arrangements in the financial sector. In DP8, the Central Bank expressed its disappointment with the results of the survey it conducted, noting that serious deficiencies were found in board awareness and understanding of the extent of reliance on outsourcing. Additionally, the Central Bank identified major weaknesses and shortcomings across regulated firms' three core functions of governance, risk management and business continuity management.

In her opening remarks to the Conference, the Director General, Financial Conduct, Derville Rowland reiterated the Central Bank's findings in DP8 and highlighted three key evolving risks associated with outsourcing: sensitive data risk, concentration risk, and offshoring risk. She also re-emphasised that while functions may be delegated or outsourced, the responsibility for those functions must always remain with the board of the regulated entity and the Central Bank expects boards to have appropriate oversight and awareness of all outsourcing arrangements and the associated risks. Boards are ultimately responsible for outsourcing and accordingly will be accountable for any regulatory breaches. She also noted that it was of vital importance for the Central Bank to have visibility of outsourced activities and that regulated firms need to ensure that their outsourcing arrangements do not preclude the Central Bank from supervising those activities. Regulated firms must also be able to "clearly demonstrate their understanding of their outsourcing arrangements and effectiveness of the governance and risk management measures in place". The Central Bank also expects all regulated firms to review their outsourcing arrangements in line with its DP8 findings and to take remedial action where necessary.

We would be happy to assist you in carrying out a comprehensive review of your existing outsourcing arrangements and developing appropriate policies and processes around current and future outsourcing arrangements. If you would like to discuss this further, please feel free to get in touch with your usual Arthur Cox contact, or any member of our team.

Central Bank's Supervisory Activities to Focus on Fund Fees and CP86 Implementation

Speaking at an Association of Compliance Officers in Ireland event, the Central Bank's Director of Securities and Markets Supervision, Colm Kincaid, stated that the Central Bank has identified assertive supervision of the funds sector as an area of key focus under its Strategic Plan for 2019-2021. He noted that during this period the Central Bank, in line with its mandate to ensure that the best interests of consumers and investors are met, will "build an ever more assertive risk-based approach to conduct supervision of funds" and highlighted both fund fees and a review of CP86 implementation as key supervisory priorities.

With regard to fees charged by funds, he noted last year's thematic review of UCITS performance fees and that the Central Bank is currently concluding its follow up supervisory engagement with identified firms through risk mitigation programmes. The Central Bank will also continue its work on closet-indexing, having to date analysed over 2,000 Irish domiciled UCITS that report to be actively managed. The Central Bank has begun its follow-up supervisory engagement with those firms where indications of closet-indexing have been identified and will continue to do so where the data indicates other cases of potential closet-indexing.

The Central Bank will also be reviewing how management companies have implemented the requirements of its Fund Management Company Guidance, commonly referred to as CP86, and is currently scoping this review. In this regard, the Central Bank has also stated that as a first step it intends to issue a questionnaire to management companies and self-managed investment companies. Analysis of these responses will then be followed up with desk-based reviews and onsite inspections of selected firms.

Impact of the Revised Shareholder Rights Directive on Asset Managers and Institutional Investors

The revised Shareholder Rights Directive ("SRD II") will apply from 10 June 2019 and introduces enhanced transparency requirements for asset managers and institutional investors in relation to shareholder engagement and investment strategy. "Asset managers" for the purposes of SRD II include, AIFMs, UCITS management companies, UCITS self-managed funds and MiFID firms. Under SRD II, asset managers must develop and disclose on a "comply or explain" basis, a policy on how they exercise voting rights and engage as shareholders in companies (that have a registered office in the EU and are listed on EU regulated markets) that they invest in. The policy should address how the asset manager: monitors investee companies; interacts and cooperates with shareholders; and manages conflicts of interest with investee companies. The engagement policy must be made available free of charge on the asset manager's website and an asset manager must disclose on an annual basis: how it has implemented the policy and how it casts votes in the general meetings of investee companies. Additional requirements apply where asset managers invest on behalf of institutional investors, which include EU life assurance companies and pension funds.

Please see our previous briefing for a more detailed discussion of the SRD II requirements.

European Parliament Adopts Key CMU Legislation in Final Plenary Session

In its final plenary session before the European elections, the European Parliament adopted a number of legislative measures of relevance to the asset management and investment funds sector. Some of the key proposals are listed below and we will keep you updated as they complete their progress through the final legislative stages.


On 24 May 2018, the European Commission (the "Commission") published legislative proposals on a package of reforms relating to sustainable finance. One of these proposals was a Regulation on sustainability disclosures setting out how financial market participants and financial advisors must integrate environmental, social or governance (ESG) risks and opportunities in their processes, as part of their duty to act in the best interest of clients. The Regulation applies to financial market participants, which includes: AIFMs; UCITS Management Companies; Investment firms providing portfolio management; and managers of EuSEF and EuVECA funds and ELTIFs. The Regulation imposes disclosure and transparency requirements on these firms and will require them (amongst other requirements) to:

  • publish written policies on the integration of sustainability risks in their investment decision-making process;
  • make pre-contractual disclosures on how they incorporate sustainability risks in their business; and
  • comply with pre-contractual transparency rules on sustainable investments.

The European Parliament adopted the Regulation on 28 March 2019 and it is expected that the proposals will be finalized during the next parliamentary term, which begins on 2 July 2019. The Regulation will enter into force 20 days after its publication in the Official Journal of the EU and will apply 12 months after that date. Therefore, the requirements could be effective as early as Q3 2020.

Additionally, ESMA has issued its technical advice to the Commission on integrating sustainability and risk factors in the UCITS, AIFM and MiFID II Directives. With regard to the UCITS and AIFM Directives, ESMA recommends amendments to the Level 2 measures regarding organisational requirements, operating conditions and risk management. The Commission must now consider ESMA's advice to determine the legislative amendments required to ensure the integration of sustainability risks and factors in the relevant directives.


On 16 April the European Parliament adopted an amending Regulation regarding the powers and governance of the European Supervisory Authorities (ESAs), including ESMA. The proposals were originally introduced in September 2017 and one of the more controversial provisions sought an enhanced role for ESMA regarding third-country delegation arrangements. This proposal was rejected and therefore National Competent Authorities (NCAs), including the Central Bank, will remain entirely responsible for authorisation of delegation and outsourcing arrangements. NCAs also remain responsible for the authorisation and supervision of ELTIFs, EUSEFs, and EUVECAs.

The next step is for the European Council to adopt the proposals.


In March 2018, the European Commission proposed amendments to both the UCITS and AIFM Directives aimed at removing identified regulatory barriers to the cross-border distribution of investment funds. The proposals (a Regulation and Directive) were adopted by the European Parliament on 16 April and once adopted by the European Council they will be published in the Official Journal of the EU and enter into force 20 days post that entry. Thereafter, the Regulation will be directly applicable 24 months later and Member States will have 24 months to transpose the requirements of the Directive.

The key legislative changes include a definition of "pre-marketing" under AIFMD, which will permit alternative fund managers to more easily test the appetite of potential professional investors in new markets and harmonising the de-notification procedure.

If you would like to discuss any of the foregoing legislative developments in more detail, please feel free to get in touch with your usual Arthur Cox contact, or any member of our team.

CRO Launches Central Register of Beneficial Ownership Website

The Companies Registration Office has launched its Registry of Beneficial Ownership website and on-line filings will be accepted from 22 June 2019, after which there will be five months for companies to file their beneficial ownership data.

As noted in last month's update, it is likely that a separate central register will be established to deal with the beneficial ownership information for ICAVs. Further clarification has been sought and we will keep you updated on this point.

Market Abuse Regulation: ESMA Updates Q&A re Investment Fund Disclosures

ESMA has updated its MAR Q&A regarding the disclosure obligations of collective investment undertakings without legal personality that are voluntarily admitted to trading or are traded on a trading venue.

New Q&A 5.6 clarifies that the scope of the requirement to disclose inside information pursuant to Article 17 of the Market Abuse Regulation includes collective investment undertakings (CIUs) without legal personality.

New Q&A 5.7 provides examples of specific cases of inside information that may arise with respect to CIUs admitted to trading or traded on a trading venue.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

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