Ireland Regulatory Update – December 2023

Kroll’s compliance experts round up key regulatory news and publications for the Irish Market.

• Individual Accountability Framework
• CBI Consultation on ELTIF Chapter in the AIF Rulebook 
• Targeted Consultation on the Implementation of the Sustainable Finance Disclosures Regulation (SFDR)
• Final Report on Draft Regulatory Technical Standards (RTS) on the Review of PAI and Financial Product Disclosures in the SFDR Delegated Regulation 
• CBI Enforcement Action: GlobalReach Multi-Strategy ICAV
• CBI Discussion Paper on An Approach to Macroprudential Policy for Investment Funds
• CBI Consultation Paper on Approach to Innovation Engagement in Financial Services
• CBI Updates to Capital Requirements for AIFMs and UCITS Management Companies
• FCA Consultation on Overseas Funds Regime
• PRIIPS KID Filing Requirements

Individual Accountability Framework

Following the signing into law on March 9, 2023, of the Central Bank (Individual Accountability Framework) Act 2023 and the accompanying CBI consultation paper, the CBI has now published the final Individual Accountability Framework Standards and Guidance.

This Act provides for the following:

• Senior Executive Accountability Regime (SEAR)
• Common Conduct Standards for individuals in Control Functions (CF), Additional Conduct Standards for individuals in senior positions and Business Conduct Standards for all firms
• Enhancements to the Fitness and Probity regime to support the new conduct standards
• Amendments to the Administrative Sanctions Procedure (ASP), allowing the CBI to take action against individuals directly for breaches of their obligations

In the final guidance and regulations, the CBI confirms the following regarding the application of both Individual Accountability Framework (IAF) and Senior Executive Accountability Regime (SEAR):

• Enhanced Conduct Standards to apply to all regulated firms from December 29, 2023
• Enhanced Fitness and Probity regime to apply to all regulated firms from December 29, 2023
• SEAR to apply to in-scope firms from July 1, 2024
• SEAR to apply to non-executive directors (NEDs) and independent non-executive directors (INEDs) from July 1, 2025

SEAR will initially apply to the following categories of regulated firms:

• Credit institutions
• Insurance undertakings
• Investment firms that underwrite on a firm commitment basis and/or deal on own account and/or are permitted to hold client assets
• Incoming third-country branches of the above

SEAR will be rolled out to other sectors on a phased basis, thereafter.

All regulated firms are required to provide training to staff members subject to the Common Conduct Standards and Additional Conduct Standards ahead of the December 29, 2023, deadline.

CBI Consultation on ELTIF Chapter in the AIF Rulebook

On March 7, 2023, the European Council (EC) adopted a revised framework for ELTIFs. The European Long Term Investment Fund (ELTIF) regulation originally came into force in 2015 but has not been a success. The revised framework aims to address deficiencies with the original regulation and make the ELTIF a more popular choice for asset managers.

Some of the highlights in the revised framework include broadening the scope of eligible assets and investments, more flexible fund rules to broaden available strategies, and the reduction of some barriers for retail investors. The revised provisions will become effective on January 10, 2024.

The CBI has published consultation paper, CP155 on November 1, 2023, on its proposed ELTIF chapter. The proposed chapter sets out the specific operational and disclosure requirements that will be applied to ELTIFs as a condition of authorization.

The ELTIF will be a standalone product and will not need to be separately authorized as a Retail Investor Alternative Investment Fund (RIAIF) or a Qualified Investor Alternative Investment Fund (QIAIF).

The consultation paper will close on December 13, 2023.

Targeted Consultation on the Implementation of the Sustainable Finance Disclosures Regulation (SFDR)

On September 14, 2023, the European Commission launched a targeted consultation of SFDR, focusing on legal certainty, the useability of the regulation and its ability to play its part in tackling greenwashing.

The consultation covers four areas:

• Current requirements of SFDR
• Interaction with other sustainable finance legislation
• Potential changes to the disclosure requirements for financial market participants
• Potential establishment of a categorization system for financial products

The consultation remained open until December 15, 2023.

Final Report on Draft Regulatory Technical Standards (RTS) on the Review of PAI and Financial Product Disclosures in the SFDR Delegated Regulation

On December 4, 2023, the European Supervisory Authorities (ESAs) published their final report on the draft RTS covering the SFDR Delegated Regulation, including principal adverse impacts (PAI) disclosures.

The ESAs propose adding new social indicators and streamlining the framework for the disclosure of PAI of investment decisions on the environment and society.

The ESAs also suggest new product disclosures regarding “greenhouse gas emissions reduction” targets. Additionally, the ESAs propose further technical revisions to the SFDR Delegated Regulation which are:

• Improvements to the disclosures on how sustainable investments “Do No Significant Harm” (DNSH) to the environment and society
• Simplification of the pre-contractual and periodic disclosure templates for financial products
• Other technical adjustments concerning, among others, the treatment of derivatives, the calculation of sustainable investments, and provisions for financial products with underlying investment options

The European Commission will now review the draft RTS and decide whether to endorse it within three months. The draft RTS would be applied independently of the comprehensive assessment of SFDR announced by the European Commission in September 2023 and before changes resulting from that assessment would be introduced.

CBI Enforcement Action: GlobalReach Multi-Strategy ICAV

On November 28, 2023, the CBI published details of an enforcement action taken against GlobalReach Multi-Strategy ICAV for breaches of its reporting requirements under the EMIR Regulations.

The ICAV failed to report 200,640 derivative trades entered into between January 2018 and May 2020 by one of its sub-funds and was fined €275,000 reduced to €192,500 as allowed for by the settlement discount scheme provided for in the EMIR Regulations Settlement Scheme.

This is the first monetary penalty imposed on an investment fund by the Central Bank to date and is notable as the fund management company was not reprimanded or fined despite the ICAV delegating its operational compliance with all applicable laws to them.

CBI Discussion Paper on an Approach to Macroprudential Policy for Investment Funds

On July 18, 2023, the CBI launched a discussion paper on the approach to macroprudential policy for investment funds. The objective of the discussion paper is to progress industry discussion and debate on the potential development and operation of a macroprudential framework for the investment funds sector. The CBI is inviting feedback on a number of issues, including:

• The channels through which investment funds can generate systemic risk
• The current regulatory framework for investment funds
• The key proposed objectives and principles of macroprudential policy for investment funds
• The design and deployment of macroprudential tools for investment funds
• Key considerations for operationalizing a macroprudential framework for investment funds

The closing date for responses to the discussion paper was November 15, 2023.

CBI Consultation Paper on Approach to Innovation Engagement in Financial Services

On November 8, 2023, the CBI published Consultation Paper 156 on its approach to innovation engagement in financial services. The consultation paper outlines the steps the CBI intends to take in enhancing its engagement initiatives with industry. The CBI has set out the following aims:

• Deepen its understanding of innovation in the financial services sector to better understand the opportunities and risks for consumers and the economy
• Better inform their regulatory approach, aligning it with a well-functioning financial system based on good levels of competition and innovation
• Better explain to innovative firms what being regulated entails, so firms can build regulatory requirements and safeguards into their early-stage development
• Embed a regulatory culture in fledgling and fast-growing firms to ensure they are properly prepared for the responsibilities that come as regulated firms, as well as properly run once authorized

The consultation paper remains open until February 8, 2024.

CBI updates to Capital Requirements for AIFMs and UCITS Management Companies

On November 27, 2023, the CBI issued a letter to all authorized AIFMs and UCITS Management Companies advising of updates made to the AIF Rulebook and UCITS Regulations relating to minimum capital requirements.

A feedback statement to Consultation Paper 152 on “Own Funds Requirements for UCITS Management Companies and AIFMs authorized to provide discretionary portfolio management”.

Chapter 3 of the AIF Rulebook and the UCITS Regulations have been amended to introduce additional requirements for AIFMs and UCITS Management Companies authorized to provide individual portfolio management services. These are new sections covering:

• Additional capital requirements of AIFMs providing individual portfolio management services
• Internal capital adequacy assessment

An updated minimum capital report template has also been published by the CBI.

The new requirements will not apply to AIFMs and UCITS Management Companies authorized on or before November 27, 2023, until May 27, 2024. UCITS Management Companies and AIFMs that obtain authorization after November 27, 2023, will be subject to these new requirements upon authorization.

Financial Conduct Authority (FCA) Consultation on Overseas Funds Regime

On December 4, 2023, the FCA published its consultation paper on implementing the Overseas Funds Regime (OFR). The regime is a post-Brexit legal framework for authorizing investment funds based outside the UK to access UK investors.

Up to this point, the Temporary Marketing Permissions Regulations (TMPR) has been used by EU-domiciled funds to maintain market access to the UK. This is due to expire in December 2025.

The new rules and guidance being proposed to put the OFR into operation, and will mean that overseas funds that are authorized and supervised in their home country can:

• Apply for FCA recognition under the OFR
• Know which of our rules they’ll need to comply with

The consultation is relevant for Irish-domiciled investment funds as the majority of them are registered for distribution in the UK.

The consultation paper closes on February 12, 2024.

PRIIPs KID¹ Filing Requirements

On November 27, 2023, the CBI published updated UCITS Q&A and AIFMD Q&A documents. Both publications confirmed updated filings for UCITS and AIFs that are required to produce PRIIPS KIDs.

From January 1, 2024, UCITS authorized prior to January 1, 2023, that are required to provide a PRIIPs KID should submit the PRIIPs KID through the CBI portal. AIFs that are required to produce a PRIIPs KID should also file it through the CBI portal from January 1, 2024.

Further information on PRIIPS KID filing requirements can be found on the relevant section of the CBI website.

¹ Packaged Retail and Insurance-Based Investment Products Key Information Document