Central Bank of Ireland publishes Markets Update for October 2022

On 5 October 2022, the Central Bank of Ireland (the Central Bank) published Issue 8 of its regular Markets Update, in which it sets out alerts of interest to Irish regulated firms and other market participants.

Of the various items covered in this Issue, we would highlight, in particular, the following four:

1. Process clarifications for UCITS and AIFs pre-contractual documentation updates in relation to the Level 2 measures in relation to the Sustainable Finance Disclosure Regulation

Last month, the Central Bank announced that it would establish a fast track process by which fund managers can submit amendments to fund documentation which have arisen as a result of the introduction of the Level 2 measures under SFDR. These changes come into effect on 1 January 2023.

The Central Bank has now set out details of how the process will work. For our summary, please see here.

2. The Central Bank publishes updates to the Funds Authorisation section of the website

The Central Bank has updated the process for pre-submission, which must be made in respect of certain Qualifying Investor AIFs (QIAIFs) and cleared by the Central Bank before an application for authorisation can be filed for that QIAIF.

The Central Bank has also reintroduced the use of quality assurance checks to allow it to continue to monitor the standard of pre-submitted QIAIFs (as well as QIAIFs more generally).

Pre-submission must be made in respect of the two following types of QIAIF:

A. QIAIFs proposing to invest in Irish property assets

A pre-submission for these QIAIFs must contain at least the following:

1. copies of the prospectus or supplement(s), as applicable;

2. a completed model portfolio template, including a line by line breakdown of the properties and related securities/instruments that the QIAIF intends to use and, where available, details of the specific properties in which the QIAIF will be investing

3. details of the maximum applicable LTV/leverage limits (including any debt at SPV/intermediate investment vehicle level) together with the rationale for such limits

4. details of the QIAIF’s liquidity status and redemption provisions and

5. an indication of the QIAIF’s expected target market.

B. Qualifying Investor AIFs proposing to invest in crypto-assets (see ID1145 in the Central Bank’s AIFMD Q&A).

A pre-submission for these QIAIFs must contain at least the following:

1. information as to how the crypto-assets’ various risks can be appropriately risk managed – see ID 1145 and

2. where there is direct investment in crypto-assets, details from the proposed depositary explaining how it is satisfied that it can safe-keep the QIAIF’s assets in compliance with accordance with the conditions set down in the Irish AIFM Regulations.

However, no pre-submission is needed where the QIAIF proposes to invest no more than 10% of its NAV in cash-settled Bitcoin futures traded on the Chicago Mercantile Exchange, so long as:

• the covering letter accompanying the QIAIF application makes reference to the inclusion of crypto-assets exposure and
• where the application is for a post-authorisation amendment, shareholder approval is obtained for the revision to the QIAIF’s investment strategy to introduce exposure to crypto-assets. (This must also be set out in the covering letter.)

Pre-submissions should

• be sent to fundsauthorisation@centralbank.ie
• be clearly marked as a “Pre-submission for a Qualifying Investor AIF – [property fund] [crypto-assets]” (delete as appropriate)
• be made in good time for the Central Bank to consider them in advance of the desired authorisation date.

3. Central Bank publishes the Forty-Fifth Edition of the Central Bank AIFMD Q&A Document

The most recent update to the Central Bank’s AIFMD Q&As contains two new Q&As:

• ID 1154 relates to QIAIFs which invest more than 50% of net assets in another investment fund and the circumstance where the reference to “net assets” can be understood to refer to committed capital.
• ID 1155 relates to the leverage limits for loan originating QIAIFs and addresses the circumstance where reference to “net asset value” can be understood to refer to committed capital.

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

The Central Bank has now confirmed that it is permissible to incorporate by reference annual financial reports prepared in accordance with the European Single Electronic Format (ESEF) Regulation in a prospectus.