Central Bank of Ireland publishes Markets Update No 5 of 2023

On 4 April 2023, the Central Bank of Ireland (the Central Bank) published Issue No 5 2023 of its regular Markets Update, in which it sets out alerts of interest to Irish regulated firms and other market participants.

For our summaries of the previous issues, please see the right-hand column of this page.

The new Update contains a number of items, including the following:

Central Bank updates its Q&As on AIFMD

On 4 April 2023, the Central Bank published the 47th edition of its Q&As on the AIFMD.

This amends question, ID 1145, which asks whether a RIAIF or a QIAIF can invest (directly or indirectly) in digital assets.

As far as RIAIFs are concerned, the answer does not change the Central Bank’s previous position.

However, the Central Bank is allowing increased limits for indirect exposure to digital assets by a QIAIF, depending on the liquidity which the QIAIF provides:

• an open-ended QIAIF can gain exposure to digital assets of up to 20% of NAV.
• a closed-ended QIAIF, or one with limited liquidity, can gain exposure to digital assets of up to 50% of NAV.

Where a QIAIF wishes to invest indirectly in digital assets, a number of requirements (set out in ID 1145) apply, including that the AIFM must:

• have an effective risk management policy to address all risks relevant to investment in digital assets;
• carry out appropriate stress testing on the proposed investment in digital assets; and
• have in place an effective liquidity management policy which includes a sufficient suite of tools for the AIFM to manage liquidity events arising in the QIAIF.

The Central Bank has updated the pre-submission process for a QIAIF proposing to invest indirectly in digital assets in excess of what is outlined above or any direct investment in digital assets.

Note that, for the purposes of ID 1145, the term ‘digital asset’ refers to those based on an intangible or non-traditional underlying.

Central Bank updates its UCITS Q&As

On 4 April 2023, the Central Bank also published the 39th edition of its Q&As on UCITS.

As with the AIFMD Q&As (above), this amends a single question, ID 1100 and reaffirms the Central Bank’s current position on a UCITS gaining exposure to digital assets.

The Central Bank notes that the amendment reflects “a change in terminology usage only”.

Central Bank Information Note on Liability Driven Investment Funds

On 29 March 2023, the Central Bank published an Information Note on Liability Driven Investment Funds (the Note).

The Note outlines the Central Bank’s engagement with market participants and regulators in the UK and across Europe (including the Luxembourg CSSF and ESMA) in light of the market turmoil of September 2022 regarding UK sovereign bonds (gilts) and the associated impact on UK pensions and liability-driven investment (LDI) funds denominated in GBP.

The Note also re-iterates the Central Bank’s expectations that minimum safeguards will be observed in maintaining a minimum Yield Buffer of 300-400 basis points.