European Union: Funds & Investment Management Update - Ireland And Luxembourg - Q3 2022

1 Legal & Regulatory

1.1 UCITS and AIFMD Update

Ireland

On 1 July 2022, the Central Bank of Ireland ("Central Bank") published updated guidance on its presubmission requirements for certain types of Qualifying Investor AIF ("QIAIF") products and confirmed the 24-hour approval process for all other QIAIFs, including loan-originating QIAIFs. For more information, see our update Welcome Enhancements to the QIAIF Pre-Submission Process

UK

The UK Financial Conduct Authority confirmed on 14 July 2022 that UCITS funds marketing in the UK must continue to provide UK investors with the traditional UCITS Key Investor Information Document ("KIID"). This applies to UCITS registered under the UK's Temporary Marketing Permissions Regime and UCITS approved to market in the UK under section 272 of the Financial Services and Markets Act 2000. For more information, see our update UCITS KIID to be Retained for UK Investors.

EU

On 8 July 2022, the European Securities and Markets Authority ("ESMA") published its annual reports on penalties and measures issued under the UCITS Directive 2009/65/EC and AIFMD imposed by national competent authorities ("NCAs") from 1 January 2021 to 31 December 2021.

In the UCITS report, 12 NCAs imposed a total of 61 penalties. The total aggregated value imposed amounted to approximately ?38,784,536. Eight NCAs imposed a total of 64 measures, with a single NCA using 35 measures. Fifteen NCAs did not impose any sanction during this period. In the AIFMD report, 10 NCAs imposed a total of 78 penalties. The total aggregated value amounted to about ?42,902,420. Six NCAs imposed a total of 62 measures, with one NCA communicating 33 measures. Eighteen NCAs did not impose any sanction.

On 20 July 2022, ESMA published updated Q&As on the application of AIFMD adding the following:

• Section VI: Depositaries - New Q&A 15 and Q&A 16 on reconciliations.
• Section VIII: Delegation - New Q&A 4 on responsibility for compliance with marketing communications requirements.

ESMA also published updated Q&As on UCITS Directive adding the following sections:

• Section X: Depository - New Q&A 7 on the reconciliation frequency for funds trading on a daily basis and new Q&A 8 on reconciliations with tri-party collateral managers.
• Section XIII: Delegation - New Q&A 1 on the responsibility to ensure compliance with the rules governing marketing communications.

On 9 August 2022, the European Central Bank ("ECB") published an opinion on the European Commission's proposed directive amending AIFMD and the UCITS Directive on delegation arrangements, liquidity risk management, supervisory reporting, provision of depositary and custody services and loan origination by AIFs. It focuses on AIFMD and sets out views on: liquidity management and macroprudential tools, reporting and the European System of Central Banks' access to detailed data on the AIF sector. The ECB also states it would have welcomed the proposed directive covering issues not addressed by AIFMD. For example, the operationalisation and development of macroprudential tools applied ex ante as a means of reducing risks to the financial system that are posed by AIFs, as well as ensuring that detailed data on individual AIFs, are made available to the ECB and other central banks.

1.2 Central Bank (Individual Accountability Framework) Bill 2022 - SEAR

The Department of Finance published the long-awaited Central Bank (Individual Accountability Framework) Bill 2022 on 28 July 2022 and it is progressing though the legislative process.

It will amend current Central Bank legislation and significantly change the regulation and supervision of regulated financial service providers and persons performing controlled functions and pre-approval controlled functions. It introduces a Senior Executive Accountability Regime ("SEAR"), new types of business and conduct standards, and an enhanced fitness and probity ("F&P") regime. The Central Bank's administrative sanctions procedure will also be amended to accommodate the new provisions. The Central Bank will launch a public consultation on the implementation of the Individual Accountability Framework once the Bill is enacted.

1.3 Sustainable Finance Update

Ireland and Luxembourg

On 1 January 2023, the Level 2 measures under the Sustainable Finance Disclosure Regulation (EU) 2019/2088 ("SFDR") will come into effect. Among other things, these measures will require affected funds to make amendments to their fund documentation, including their prospectuses. The Central Bank announced in September 2022 that it will use a fast-track process. The Central Bank issued a further communication on 4 October 2022 for UCITS and AIF pre-contractual documentation updates on the SFDR Level 2 measures. Filings must be made no later than 1 December 2022 with this deadline applying to all UCITS, RIAIFs and QIAIFs.

Equally in Luxembourg, the Commission de Surveillance du Secteur Financier ("CSSF") announced on 27 July 2022 a fast track procedure for the examination and approval of updated pre-contractual documentation on SFDR Level 2 measures and the Taxonomy Regulation (EU) 2020/852 ("Taxonomy Regulation") if certain conditions are satisfied. The deadline for filing updated precontractual documentation is 31 October 2022. On 6 September 2022 the CSSF informed financial market participants that it published a confirmation letter for UCITS and AIFs that must accompany the updated pre-contractual documentation filing.

In Ireland, the European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) (No.2) Regulations 2022 came into operation on 12 September 2022 and transposed the UCITS Delegated Directive (EU) 2021/1270 on sustainability risks and sustainability factors to be taken into account for UCITS. In Luxembourg CSSF Regulation 22-05 came into force on 31 July 2022 and also transposed Directive (EU) 2021/1270 which imposes obligations on UCITS management companies to:

• Integrate sustainability risks in the management of UCITS;
• Include in their conflicts of interest procedures a consideration of any conflicts which may arise as a result of the integration of sustainability risks;
• Take into account sustainability risks as part of the due diligence in the selection and ongoing monitoring of investment; and
• Capture details of procedures to manage sustainability risks in the risk management policy.

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