Funds - Ireland - Quarterly Update Q3 | July - September 2016

1 LEGAL & REGULATORY

1.1 UCITS Update

There have been a number of developments over the quarter:

UCITS V

The European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2016 implemented the UCITS V Directive 2014/91/EU ("UCITS V") into law in Ireland. European Commission Delegated Regulation ((EU) 2016/438 supplementing UCITS V with regard to obligations of depositaries (the "UCITS V Level 2 Regulation") applies from 13 October 2016.

Asset segregation and custody services

On 15 July 2016 ESMA published a call for evidence on asset segregation and custody services under AIFMD and UCITS V (see 1.7 below for further detail).

ESMA and Central Bank Q&As

On 19 July 2016, ESMA published an updated version of its Q&A on the application of the UCITS Directive. It includes one new Q&A on the impact of EMIR on the UCITS framework on the valuation of centrally cleared OTC derivatives by UCITS management companies.

On 12 September 2016 the Central Bank published a fourteenth edition of its UCITS Q&A. It includes new Q&As in respect of umbrella funds and cash accounts and a new Q&A on the submission of the second set of half-yearly accounts by UCITS management companies/depositaries.

1.2 AIFMD Update

There have been a number of developments in relation to the Alternative Investment Fund Managers Directive 2011/61/EU ("AIFMD") over this quarter:

Asset segregation and custody services

On 15 July 2016 ESMA published a call for evidence on asset segregation and custody services under AIFMD and UCITS V (see 1.7 below for further detail).

EMSA advice on AIFMD passport to 12 non-EU jurisdictions

On 19 July 2016, ESMA published its advice (ESMA/2016/1140) on the application of the EU passport under AIFMD to non-EU alternative investment fund managers ("AIFMs") and alternative investment funds ("AIFs"). Non-EU AIFMs and non-EU AIFs managed by EU AIFMs are subject to the national private placement regime ("NPPR") of each of the Member States where the AIFs are marketed or managed. (A slightly revised version was published on 12 September 2016 which provides additional information on the Isle of Man.) Article 67(1) of the AIFMD requires ESMA to produce guidance on the application of the passport (which is currently reserved to EU AIFMs and AIFs) to non-EU AIFMs and AIFs. In the advice, ESMA sets out the results of its assessments of 12 non-EU jurisdictions and concludes that:

There are no significant obstacles impeding the application of the AIFMD passport to Canada, Guernsey, Japan, Jersey and Switzerland. There are no significant obstacles impeding the application of the AIFMD passport to AIFs in Hong Kong and Singapore. However, it is noted that both jurisdictions have regimes that facilitate the access of UCITS from only certain EU Member States to retail investors in their territories. There are no significant obstacles regarding investor protection and the monitoring of systemic risk which would impede the application of the AIFMD passport to the US. There is no significant obstacle for funds marketed by managers to professional investors that do not involve any public offering. However, an extension of the AIFMD passport to the US risks an un-level playing field between EU and non-EU AIFMs in the case of funds marketed by managers to professional investors which involve a public offering. The EU should consider options to mitigate this risk It cannot give advice on the criteria on investor protection and effectiveness of enforcement in Bermuda or the Cayman Islands, as both are currently implementing new regimes and it was difficult to assess whether the investor protection criterion was met in relation to the Isle of Man, given the absence of an AIFMD-like regime. The Commission, Parliament and the Council will now consider the advice.

On 11 October 2016, Steven Maijoor, ESMA Chair told the Economic and Monetary Affairs Committee ("ECON") of the European Parliament that ESMA in the short term is focusing on its assessment of Bermuda and the Cayman Islands in order to decide on whether to extend the passport to them; will assess an additional group of non-EU countries when it has more clarity on the next steps envisaged by co-legislators; and will also focus on putting in place a framework in case the passport is extended to one or more non-EU countries.

For more information see our client update, ESMA Advice Suggests Further Deferral of AIFMD Passport for Third Countries

Central Bank and ESMA Q&As

On 19 July 2016, ESMA published an updated version of its Q&A paper on the application of AIFMD. This includes one new Q&A relating to the impact of EMIR on the AIFMD framework regarding the valuation of centrally cleared OTC derivatives by AIF managers.

On 12 September 2016, the Central Bank published a twentieth edition of its AIFMD Q&A. which includes new Q&As in respect of umbrella funds and cash accounts.

1.3 CP86

The period for industry feedback on the Central Bank's third consultation on fund management company effectiveness (part of the CP86 process) closed on 25 August 2016. Maples and Calder responded to this consultation. This response endorsed the Irish Funds response and also addressed a number of specific points, in particular, the director location rule. This followed some direct engagement Maples had with the Central Bank on these matters. If you would like to receive a copy of the Maples and Calder response or the Irish Funds response, please get in touch with your usual contact.

Final guidance is expected to be issued by the Central Bank shortly.

1.4 EMIR

The European Market Infrastructure Regulation (Regulation on over the counter ("OTC") derivative transactions, central counterparties ("CCPs") and trade repositories (Regulation 648/2012)) ("EMIR") is relevant to all Irish funds trading in financial derivative instruments ("FDI") whether on an exchange or otherwise. UCITS and AIFs are financial counterparties for EMIR purposes, subject to the full scope of EMIR obligations.

There have been a number of developments over the quarter:

On 13 July 2016, ESMA published a consultation paper on delaying the phase-in period by two years for the EMIR clearing obligation for financial counterparties with a limited volume of activity.

On 23 July 2016 the European Commission Implementing Decision ((EU) 2016/1073) on the equivalence of US designated contract markets ("DCMs") under of EMIR came into force. As a result the boards of trade designated by the Commodity Futures Trading Commission as contract markets in the US are considered as equivalent to regulated markets as defined in the Markets in Financial Instruments Directive and a US DCM executed derivatives contract will not be considered to be an OTC contract under EMIR and, as such, not subject to EMIR central clearing requirements.

On 27 July 2016 ESMA issued an updated Q&A on EMIR. This includes a new answer on reporting trades cleared by a clearing house which is not a CCP under the EMIR definition - those entities should not be identified in the "CCP ID" field of EMIR reports. Also, in the case of trades that are executed in an anonymised market and cleared by a clearing house, the counterparty executing the transaction should request the trading venue/clearing house that matches the counterparties to disclose the identity of the other counterparty before the reporting deadline.

The European Union (European Market Infrastructure) (Amendment) Regulations 2016 signed on 29 July 2016 give effect to Regulation (EU) 2015/2205 (on regulatory technical standards ("RTS") on central clearing for interest rate derivatives under Article 5(2) of EMIR) and Regulation (EU) 2016/592 supplementing EMIR relating to RTS on the clearing obligation for certain credit derivative contracts) in Ireland.

On 9 August 2016, Commission Delegated Regulation ((EU) 2016/1178) supplementing EMIR as regards RTS on the clearing obligation came into force. Under this, certain OTC credit derivative contracts denominated in specific European currencies (namely the Norwegian Krone, the Polish Zloty and Swedish Krona) must be cleared through CCPs.

On 30 September 2016 ESMA published a consultation paper on draft RTS and draft implementing technical standards ("ITS") implementing the Regulation on reporting and transparency of securities financing transactions (see 1.14 below). In it ESMA also proposes amendments to existing technical standards implementing requirements relating to trade repositories under EMIR and is consulting on a consolidated amended text of RTS on registration of trade repositories under EMIR and amendments to RTS on access levels under EMIR.

On 30 September 2016, following a review of EMIR Regulatory Returns received from non-financial counterparties with significant derivatives exposures, the Central Bank...