Central Bank of Ireland updates

1. Central Bank of Ireland issues process clarifications for UCITS and AIFs pre-contractual documentation updates in relation to the Level 2 measures for SFDR

On 5 October 2022, the Central Bank of Ireland published a notice highlighting process clarifications for the UCITS and AIFs pre-contractual documentation updates in relation to the Level 2 measures under the Sustainable Finance Disclosure Regulation (‘SFDR’).

The notice states that the SFDR requires financial market participants and financial advisers, including UCITS management companies and AIFMs, to make pre‐contractual and ongoing disclosures to end investors with regard to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment. While the SFDR Level 1 requirements came into force on 10 March 2021, the SFDR Level 2 requirements will apply from 1 January 2023, which will result in updates to pre-contractual documentation for UCITS and AIFs.

In order to facilitate orderly implementation of these requirements, the Central Bank has established a streamlined filing process for pre-contractual document updates based on the SFDR Level 2 requirements, under which both UCITS management companies and AIFMs will be required to certify compliance with the requirements via an attestation, with responsibility for this lying with the relevant manager.

The notice advises:

  • Which documents need to be filed with the Central Bank for UCITS and AIFs;
  • That filings must be made no later than 1 December 2022 for all UCITS, RIAIFs and QIAIFs;
  • That the streamlined process is only available for SFDR Level 2 requirements;
  • That submissions not cleared of comment by the filing deadline will be subject to compliance with the Central Bank’s usual review process, including those cleared but not yet authorised by the filing deadline;
  • That the streamlined process may be used where there is to be a reclassification of the fund, provided a rationale is included;
  • That where a new fund/sub-fund application has been made with the Central Bank then the disclosures made in relation to SFDR Level 2 requirements will be reviewed;
  • That where a submission is made with the Central Bank subsequent to the SFDR Level 2 deadline of 1 January 2023, then the streamlined process will not be available ­– the disclosures will be reviewed by the Central Bank and may be subject to comment.


2. Central Bank of Ireland publishes updates to funds authorisation section of website

On 5 October 2022, the Central Bank of Ireland updated the pre-submission process for investment funds, and in order to mitigate concerns regarding the removal of certain funds from the pre-submission process, has reintroduced the use of quality assurance checks. The funds authorisation section sets out the information to be provided as part of the pre-submission process for: (1) QIAIFs proposing to invest in Irish property assets; and (2) QIAIFs proposing to invest in crypto-assets, per the AIFMD Q&A ID 1145.



3. Central Bank of Ireland publishes revised monthly client asset report template and guidance note

On 5 October 2022, the Central Bank of Ireland published a revised Monthly Client Asset Report (‘MCAR’) template as part of the enhancements to the Irish client asset regime, following the publication of the revised Client Asset Requirements in July 2022. It has also published an accompanying guidance note to assist with the template’s completion.

Investment firms are advised by the Central Bank to begin preparations to ensure that they can report the new and enhanced client asset information required by the revised MCAR template. However, investment firms are not required to commence using the template for the purpose of MCAR reporting at this time, and the Central Bank advises that they should continue to submit the existing MCAR until further notice.



4. Central Bank of Ireland publishes 45th edition of AIFMD Q&A

On 5 October 2022, the Central Bank of Ireland published the 45th edition of the AIFMD Q&A, which includes two new Q&As – ID 1154 and 1155.

Q&A ID 1154 relates to QIAIFs which invest more than 50% of net assets in another investment fund and whether the reference to “net assets” can be understood to refer to committed capital. The Central Bank answers this question in the affirmative, provided that the QIAIF remains closed for redemptions during the capital commitment period.

Q&A ID 1155 relates to the leverage limits for loan originating QIAIFs and addresses whether “net asset value” can be understood to refer to committed capital. Again, the Central Bank answers this question in the affirmative, provided that the QIAIF remains closed for redemptions during the capital commitment period.

For both Q&As, the Central Bank advises that for the purposes of this treatment, the start date and the end date of the capital commitment period must be disclosed to investors, and that the calculation methodology can only be applied for six months following the completion of the capital commitment period.



5. Central Bank of Ireland updates website to include references to recently published UCITS statutory instruments

On 5 October 2022, the Central Bank of Ireland updated its website to include references to the recently published statutory instruments on UCITS, namely S.I. No. 262/2022 – European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) Regulations 2022 and S.I. No. 442/2022 – European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) (No.2) Regulations 2022. S.I. No. 262/2022 was published in May of this year and comes into operation on 1 January 2023, however S.I. No. 442/2022 comes into operation on 12 September 2022.



6. Central Bank of Ireland clarifies incorporation by reference in a prospectus of annual financial reports prepared in accordance with the ESEF Regulation

On 5 October 2022, the Central Bank of Ireland confirmed the permissibility of incorporating by reference annual financial reports prepared in accordance with the European Single Electronic Format (‘ESEF’) Regulation in a prospectus. The guidance notes that the ESEF Regulation introduced a single electronic reporting format for the annual financial reports of issuers with securities admitted to trading on EU regulated markets, which applies to annual financial reports containing financial statements for financial years beginning on or after 1 January 2021.

While the Central Bank (Investment Market Conduct) Rules generally require that documents to be incorporated in a prospectus by reference be submitted in portable document format (pdf), the Central Bank’s clarification notes that annual financial reports required to be prepared in the format prescribed by the ESEF Regulation may also be incorporated by reference in a prospectus in that format and submitted to the Central Bank for that purpose.



ESA updates

7. ESMA publishes final guidelines on MiFID II suitability requirements

On 23 September 2022, the European Securities and Markets Agency (‘ESMA’) published its final report on guidelines on certain aspects of the MiFID II suitability requirements. The assessment of suitability is one of the most important requirements for investor protection in the MiFID II framework, and applies to the provision of any type of investment advice (whether independent or not) and portfolio management. The report builds on the 2018 ESMA guidelines, which have been reviewed to consider:

  • changes to the MiFID II Delegated Regulation to integrate sustainability factors, risk and preferences into organisational requirements and operating conditions for investment firms;
  • good and poor practices identified in ESMA’s 2020 Common Supervisory Action (‘CSA’) on suitability; and
  • amendments introduced through the Capital Markets Recovery Package to Article 25(2) of MiFID II.

The guidelines apply to competent authorities and firms (to include UCITS management companies and external AIFMs when providing the investment services of individual portfolio management or non-core services (within the meaning of Article 6(3)(a) and (b)(i) of UCITS Directive and Article 6(4)(a) and (b)(i) of the AIFMD)), and are in effect from six months from the date of publication on ESMA’s website in all EU official languages. The guidelines apply in relation to the provision of investment advice and portfolio management as investment services listed in Section A of Annex I of MiFID II, and principally address situations where services are provided to retail clients and, to the extent that they are relevant, professional clients.

The guidelines address, among other matters, the following topics:

  • Information to clients about the purpose of the suitability assessment and its scope;
  • Know your client and know your product, including the extent of information to be collected from clients, the reliability of client information, and updating client information;
  • Matching clients with suitable products, including the costs and complexity of equivalent products, and the costs and benefits of switching investments;
  • Other related requirements, including qualifications of firm staff, and record-keeping.


8. ESMA reminds firms of the impact of inflation in the context of investment services to retail clients

On 27 September 2022, ESMA published a statement reminding firms to consider inflation and inflation risk when applying relevant MiFID II requirements in the interest of investor protection. The statement arises against the backdrop of rising inflation rates over the past months, both within the EU and internationally. ESMA notes that from an investor protection perspective, this trend poses a risk for retail clients, some of whom will not appreciate the link between inflation and financial markets and how considerations on inflation should be factored in when making saving and investment decisions.

In particular, the statement highlights the requirements under MiFID II to ensure that all information, including marketing communications, addressed by the investment firm to clients or potential clients is fair, clear and not misleading. It also highlights requirements for the assessment of suitability, and product governance requirements for those firms that manufacture and distribute financial instruments.

ESMA notes that it will continue to monitor and assess the evolution of inflation and the potential impact on the market to identify and assess risks to investors, orderly markets and financial stability in the EU.



9. ESAs propose disclosures for fossil gas and nuclear energy investments under the SFDR

On 30 September 2022, the three European Supervisory Authorities (EBA, EIOPA and ESMA (‘ESAs’)) delivered to the European Commission their Final Report with draft Regulatory Technical Standards (‘RTS’) regarding the disclosure of financial products’ exposure to investments in fossil gas and nuclear energy activities under the Sustainable Finance Disclosure Regulation (‘SFDR’). Due to the urgency of the matter, no public consultation was held on the proposals.

The ESAs propose to add specific disclosures to provide transparency on investments in taxonomy-aligned gas and nuclear economic activities in order to assist investors make informed decisions. In particular, the proposed disclosure requirements would add a yes/no question to identify whether the product intends to invest in such activities, with further information required if answered in the affirmative, as well as to implement technical revisions to the Delegated Regulation.

The Commission will review and consider the draft RTS and endorse them within three months of their publication.



10. ESMA publishes strategic priorities for next 5 years

On 10 October 2022, ESMA published its strategy for 2023-2028 detailing its long-term priorities and how it will use its toolbox to respond to future challenges and developments. The strategy comprises five key elements, namely:

  • Fostering effective markets and financial stability by focusing on ensuring fair, orderly and effective markets, increased transparency (e.g. through implementing the European Single Access Point) as well as enhancing financial stability. ESMA advises that it will continue developing, maintaining and streamlining the Single Rulebook and supporting the EU’s voice in international regulatory and supervisory discussions. In particular, with respect to funds, ESMA will contribute to enhancing financial stability by strengthening the framework applicable to non-bank financial intermediation (possibly through changes in the money market funds’ (MMFs) regulatory framework, should those be proposed by the European Commission).
  • Strengthening supervision of EU financial markets – ESMA’s ambition is to achieve a common EU supervisory culture, risk prioritisation, and the convergence of supervision approaches and outcomes.
  • Enhancing retail investor protection – ESMA and the NCAs seek to ensure that investors are effectively protected, with a particular focus on retail investors, and specific actions planned related to investor engagement and effective information and disclosure.
  • Enabling sustainable finance – ESMA will seek to support the transition to a more sustainable economic and financial system, aligning itself with the priorities set out under the Sustainable Finance Roadmap.
  • Facilitating technological innovation and effective use of data - ESMA will also seek to ensure that financial regulation does not hinder innovation, while maintaining a level playing field between emerging players and products and more traditional ones. In this regard, ESMA will focus on assessing the impact of technologies used in financial markets on the existing regulatory framework and implementation of the upcoming EU legislation in this area.


Industry and other updates

11. EFAMA publishes latest statistics on funds

On 26 September 2022, EFAMA published its latest monthly Investment Fund Industry Fact Sheet, providing data for UCITS and AIFs for July 2022. Net sales of UCITS and AIFs registered net outflows of €43bn (down from €72bn in June), with UCITS having net outflows of €24bn (compared to net outflows of €69bn in July), and net inflows for AIFs of €19bn (up from €3bn in June). Total net assets of UCITS and AIFs increased by 4.4% during the period to €20.3tn.

Further, on 21 September, EFAMA published its report on international statistics for Q2 2022, in which it was noted that there was a further worldwide net fund assets decline in Q2 2022 as rising inflation and the war in Ukraine negatively impacted financial markets. Net sales of long-term funds turned negative for the first time since Q1 2020, however net sales of worldwide MMFs recovered in Q2 2022 attributable to solid net inflows in China and lower net outflows in Europe and the United States.

Contact us for more

For further information on the issues mentioned above, or any related issues, please contact Jorge Fernandez Revilla, Head of Asset Management

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