Paddy Rath

Hello and welcome to the first episode in our mini series on launching a European CLO platform. My name is Paddy Rath and I’m a partner in the Structured Finance and Securitisation Group here at Arthur Cox. I’ve been working on CLOs now since the advent of CLO 2.0, so almost 13 years now. Just to set the scene for this mini series. A lot has been written in recent months about new managers exploring the launch of European CLO platforms, and given that most CLO SPVs are Irish established entities, we thought it’d be a useful time to discuss some of the Irish legal, tax, and regulatory aspects that need to be considered when launching a European CLO platform. This mini series should be of use to those exploring the launch of European CLO platforms but also to those with existing European CLO platforms who maybe want to brush up on some of the Irish legal, regulatory, and tax aspects. So today we’re going to focus on some regulatory gating items with an Irish nexus. And to discuss these items, I’m joined by Rob Cain, who is a partner in our Financial Regulation Group here at Arthur Cox, and dare I say, a veteran podcaster. Rob, thank you very much for joining me in my first foray into podcasting. How am I doing so far?

Rob Cain

Very good. Well, apart from calling me a veteran, but I’ll let you off. But yeah, really good to be here.

Paddy Rath

Okay, brilliant. We’ll stick to the facts so. Rob, can you tell me a little bit about you and your team here at Arthur Cox and what you do?

Rob Cain

Yeah, absolutely. Yes, I’m a partner in the Financial Regulatory Group. We have two partners, myself and Sarah Thompson, an of counsel, we have a director in Denise Murray, six or seven associates. So a team of around ten to twelve people. We have a sort of a cradle to grave regulatory practice. That’s what I call it. We do everything from establishment to firms looking to wind up and everything in between. Lots of advice on structuring, particularly we support you and the team on structuring, advice on transactions, regulatory development advice with you and the team. We do a lot of work in corporate governance. We do regulatory investigations, AML, anything regulatory we do.

Paddy Rath

Very good. I think in terms of the kind of conversations that I would have with new CLO managers, they’re always very keen to get ahead of any regulatory gating items that might stop or hinder the launch of their European CLO platform. And so it’s fair to say that collateral managers’ UK counsel probably shoulder a lot of the burden in terms of securitisation regulation, risk retention, but there are some kind of distinct Irish pieces where we need to provide regulatory advice. The one that springs to my mind is MiFID and the Irish safe harbour exemption that may be available. Would you be happy to talk a little bit about that?

Rob Cain

Yeah, absolutely. Yeah. Maybe just to give you a sense as well as to how we sort of work with the CLO practice. So in the regulatory team, we provide advice to a wide range of regulated entities, banks, investment firms, payment institutions, e-money firms, etc. In the CLO space, we advise on structuring, we advise managers setting up operations, new legal developments, and all that sort of stuff. So we work with you and the team on a really regular basis. In terms of the safe harbour, that’s probably the piece of law that we advise the most of, comes up all of the time. And I think it’s particularly important because it allows non-EU managers to provide services to Irish SPVs without needing a licence. So without needing to be authorised under our MiFID implementing legislation, which otherwise applies where you provide investment services in relation to financial instruments. So if you’re portfolio managing, advising, etc. So this is a really important exemption for our CLO manager clients. So to make use of the safe harbour, there’s kind of five things that have to be true. So five conditions that you have to meet. Okay, let’s hear it. So we’ll go through them. Some are easier to conceptualise or think about than others. So the first one is an easy one. You can’t have an Irish branch. You have to have no permanent presence here. That’s pretty easy to meet, in most cases the guys don’t have a branch here. Next one, have to have a headquarters outside the EU. That’s fine as well. Nice and straightforward. Third one is that the manager has to be properly authorised and supervised in its home country, so its home member state. That can sometimes be a little bit tricky because sometimes we’ve come across managers who aren’t authorised in their home member state for whatever reason, or they’re benefiting from an exemption.

So that’s one to think about. That’s the third one. The fourth one is that there has to be a cooperation arrangement between the Central Bank of Ireland and the home state regulator. There isn’t sort of a complete list of those cooperation arrangements. Some of them are sort of private between regulators, but a good place to start is the IOSCO MOU. And then Schedule 2 has a list of this kind of like global MOU for information sharing. So that’s the fourth requirement. And the fifth and final one, which is probably the most important for the safe harbour, is that it only applies where you’re providing services to eligible counterparties, or what we call per se professional clients. So those are sophisticated institutional clients, other regulated entities. Critically, SPVs are included in that list, and other types of entities. So those are the

Paddy Rath

non-elective people.

Rob Cain

Exactly. So retail, for example, natural persons. The safe harbour doesn’t apply. So if we take a step back, how does that kind of work and how do we see that working in practice? If you meet the conditions, you’re exempt. Typically, US and UK managers will inevitably meet the conditions, and US managers we very commonly come across.

Yeah, yeah.

Paddy Rath

But I guess probably from your perspective, it would be advisable to work through the analysis, not to assume you meet the criteria, right?

Rob Cain

Absolutely. Yeah. Take advice and get it written down. We’re very happy to do that.

Paddy Rath

Yeah, yeah. So I guess very high-level summary, MiFID comes into play when you are managing financial instruments such as bonds. So a bond bucket in a CLO, for example.

Rob Cain

Exactly. Yeah. So financial instruments, stuff like shares, bonds, derivatives, range of debt securities, units in a collective investment scheme— might come on to it in a minute— but critically, it doesn’t include loans. So loans are not financial instruments.

Paddy Rath

Yeah. And sorry, that’s an important nuance to remember, particularly if a manager is engaged in a protracted regulatory process or an authorisation process.

Rob Cain

Exactly.

Paddy Rath

And they want to hit the ground running, they can set up a warehouse from an Irish perspective anyway, without triggering an authorisation requirement if they are solely purchasing and managing loans, right?

Rob Cain

Exactly. Yeah. Advice, managing, executing transactions in loans, all unregulated. When you move into the securities space, financial instruments space, bonds, etc., that’s when you have to issue under MiFID.

Paddy Rath

Yeah. Yeah.

Rob Cain

Okay.

Paddy Rath

Well, like MiFID, I guess in this space, it’s nothing new, but I think for new managers, people kind of looking at entering Europe, particularly from the US, something to be aware of, something to discuss early with you guys, I think.

Rob Cain

Absolutely. People tend to want to know, am I able to carry on the business here without needing a licence? That leads to a discussion around the safe harbour.

Paddy Rath

Yeah, perfect. Okay. Well then, how about we move on to something a little bit more topical that again kind of falls into the bucket of regulatory regimes that collateral managers should be aware of when looking at funding an Irish SPV. And CRD VI Article 21c is very topical at the moment. So maybe kind of high-level summary of CRD VI and how it can apply to CLO transactions. And I guess what we’re seeing as things develop in this space.

Rob Cain

Really, really topical at the moment. We’ve done podcasts on this, we’ve had loads of literature on this, and loads and loads and loads of questions at the moment from clients. We’re doing loads and loads of advice on this. So to kind of reiterate some of the stuff we’ve we’ve put out before. Article 21c CRD  VI imposes a restriction on non-EU banks providing banking services into the EU at its simplest. So deposit-taking, lending, other core banking services like issuing guarantees, commitments, and things like that. It’s a big issue in Ireland because we’ve historically not regulated commercial lending. So to date, or historically, anybody could lend into Ireland on an unregulated basis where the borrower is not a natural person, nice and straightforward. So SPVs have never had to worry, Irish SPVs at least, have never had to worry about where they get their credit from.

Paddy Rath

Yes.

Rob Cain

21c comes along and changes that because of this restriction for non-EU banks. Really important point, just applies to non-EU banks and certain big investment firms. Doesn’t apply to unregulated lenders. So if you get your credit from an unregulated lender, you’re fine. A non-bank lender, you’re fine. Exactly. Bob’s your uncle. It’s the banks, the non-EU banks you have to watch out for. So there’s a general prohibition, and it’s particularly relevant, I think, to SPVs in the context of, as I said, where they’re funded by a non-EU bank at the warehouse stage, or where you’ve got a class A loan from a non-EU bank in the capital stack at the CLO stage. So that’s where this becomes relevant in the CLO space. Now, there are exemptions available, and there’s been a lot of debate around how the exemptions play out, what they mean in practice, how they’re going to work. We’ve got little or no guidance in an Irish context. We’ve actually got little or no guidance in a European context around how some of the exemptions work. So we have spent a lot of time with clients over the last few weeks and months, Sarah Thompson and I, the other partner in the group, advising clients around this.

And there’s a sort of a consensus, I think, emerging around how the exemptions will play in practice, and in particular, how the reverse solicitation exemption will work in practise. So the way the legislation is drafted, if you provide, for example, a loan on an unsolicited basis, so at the initiative of the borrower, where you don’t solicit the, you don’t sort of push or market the lending, then there’s an exemption effectively.

Paddy Rath

Yeah.

Rob Cain

in the structured finance space, and indeed in other industries as well, just the way transactions come about, where you have sponsors, you have a borrower that sort of an SPV created at the end of the process. The idea of solicitation is kind of hard to get your head around. It’s not like there’s a borrower who you can sort of market to and actively solicit. I think the way we see the market playing out over the next little while is that people will become comfortable, I think, with reverse solicitation. Based obviously on the structure and how they actually put their structure together.

Paddy Rath

So the factual matrix is important, right?

Rob Cain

Super important. Yeah. So the fact that you shouldn’t assume that you can benefit from reverse solicitation. It’s very fact-dependent, but we’re sort of hopeful, and we think that the industry will sort of coalesce around a reasonable interpretation of that. And in other areas, or in other sectors, not necessarily in the CLO space yet, we’re starting to see borrowers become quite savvy and look to support their lenders by, for example, confirming that the loans were provided on an unsolicited basis. The really sophisticated borrowers, keen to get credit and are happy to support the factual matrix that you’re looking to put in place.

Paddy Rath

Yeah. Okay. So there is a kind of a narrow suite of exemptions, but I think in summary, we feel you may be able to avail of exemptions, but if you’re not, then there are also structuring solutions, I think, that are coming around, right?

Rob Cain

Yeah. So some structuring solutions. So the number one is kind of lending through lending through an unregulated entity. I said at the start, this restriction, 21c, just applies to lending by, in this case, non-EU banks. So if your credit’s provided by a non-bank, in theory, not caught. We’re also seeing people think about structuring transactions where instead of a loan, you fund through a sort of security.

Paddy Rath

Yeah. So I think, again, it’s one of these regulatory kind of items that managers need to be aware of.

Rob Cain

Exactly. Yeah.

Paddy Rath

Not necessarily fatal. Applies in the context of non-EU banks and large investment firms lending. So will in a CLO context, probably senior loan in a warehouse, perhaps a class A loan in a CLO, there are structuring solutions. So again, it’s just something for managers to be aware of, discuss with their lenders when they’re looking at kind of setting up the lending arrangements into the Irish SPV.

Rob Cain

Yeah, exactly. And the key thing to remember as well is that it’s a lender issue, not a borrower issue. So it’s for the banks to sort out.

Paddy Rath

Yeah, perfect. Okay. All right, look, that was a really helpful, I think, whistle-stop tour of some of the kind of regulatory gating items that managers need to consider when they’re launching their first European CLO platform. Brendan Kennedy and I from the Structured Finance Group will discuss some of the business as usual regulatory matters that impact the SPV later in the series. So Schedule 2 AML, credit reporting, You know, the old chestnuts. But for now, thank you very much for joining, Rob. Could you give us your three top tips then for CLO managers looking to launch a European CLO platform?

Rob Cain

Yeah, so check your licencing position, make sure that what you’re doing doesn’t trip over one of the licencing regimes here, particularly, well, mainly MiFID. So make sure that you sort of meet the requirements of the safe harbour. That’s number one. Number two, have in mind that sort of loans versus financial instruments, bonds, and splits. So services in relation to loans, unregulated. Services in relation to debt securities, bonds, et cetera, are. So you need to be mindful sort of at which point you’re tripping from a completely unregulated activity into the MiFID space, in which you need the safe harbour. And then the third one is one we spent a bit of time talking about a minute or two ago, Article 21c. Just be mindful that your lender will need to make sure that they’re 21c compliant where relevant.

Paddy Rath

Yeah, so be on inquiry, but we don’t think it will be a fatal issue.

Rob Cain

No.

Paddy Rath

Yeah, brilliant. Okay, well, look, brilliant tips, Rob. Thanks very much for joining us today. That’s it for today’s episode. Join us for the next episode where we will discuss some of the practical aspects of establishing your first Irish CLO SPV. I’ll be joined by Fiona De Lacy, the Managing Director of our Corporate Services Group here at Arthur Cox. If you’d like some more information on anything we’ve discussed today, please do not hesitate to reach out to Rob or myself, or alternatively, visit arthurcox.com/clo. Thank you.

Paddy Rath 

Hi everyone, and welcome to episode two in our mini series on launching a European CLO platform, the Irish edition. My name is Paddy Rath, and I’m a partner in the Structured Finance and Securitisation Group here at Arthur Cox. I am delighted today to be joined by my good friend Fiona de Lacy. Fiona and I previously worked together for nine years, and Fiona is the Managing Director of our Corporate Services business here at Arthur Cox. So Fiona, before we get down to the nitty-gritty, can you tell me a little bit about your journey so far at Arthur Cox, the development of the Corporate Services business here, and how things are going? 

Fiona de Lacy 

Yes, no problem, Paddy, and delighted to be here. As you well know, prior to joining Arthur Cox, I spent nearly a decade building a corporate service provider for another law firm. When I joined Arthur Cox, I was given a blank canvas, an enormous amount of support, and once again, an opportunity to build something from scratch. That has been really exciting, and it’s been a wonderful first year. What we’ve been aiming to do is build a technology-enabled corporate services business that provides law firm style corporate services to our clients, a business that is fully integrated with Arthur Cox’s legal, tax, and listing offering. So far, it’s been going really well, and I’m happy to say it’s been a wonderful first year. 

Paddy Rath 

Good. Well, I think you’re being slightly modest. My understanding is that for 2026, the Arthur Cox Corporate Services business is fourth in terms of incorporations among corporate service providers across Dublin. That’s a great achievement in the space of a year. What do you attribute your early success to? 

Fiona de Lacy 

I think there are probably three core ingredients. Without a shadow of a doubt, first and foremost is the quality of my team. My CLO transaction management and accounting team has some of the most experienced professionals in this market, in the Dublin market, many of which I’m delighted to say I worked with previously. So, huge credit to the quality and the depth in the team for the success of the last year, and it’s clear the clients are recognising that. Secondly, I would say how we’ve embraced technology has really enabled us to grow quickly in this first year. We really are investing in technology, and as you’d be aware, Arthur Cox have recently announced their partnership with Legora, but separate to that, we have a very sophisticated SPV entity management system that really enables us to deliver our transaction management, compliance, regulatory, and very importantly, our client accounting services to our clients in the most efficient and controlled environment. And that is really enabling us to do very well and to deliver the type of quality that we want to deliver, but equally to set an incredibly strong foundation to how we grow and expand over the coming years. 

Paddy Rath 

Yeah. 

Fiona de Lacy 

Third is probably something a little bit more novel in the corporate services space. We are the only corporate services provider in Ireland that is part of an onshore Irish law firm. Arthur Cox is one of the leading Irish law firms, and we leverage this institutional legal knowledge as part of our offering to develop best in class compliance solutions for our clients. 

Paddy Rath 

Brilliant. Okay, well, I think we’ve adequately set the scene there, so maybe let’s get down to it. In terms of insights that you can share with new managers looking to establish their first CLO SPV in Ireland, talk to me about some of the basics. So what’s the incorporation process? How long does it take? What is the process involved? 

Fiona de Lacy 

Yeah, Irish CLO SPVs are typically incorporated as designated activity companies, or DAC, as we often know them. They’re very simple to incorporate. All you need is two Irish resident directors, a secretary, a registered office, at least one shareholder, and a minimum issued share capital, typically of €1, as these SPVs are thinly capitalised. So the process is quite straightforward, and my team can fully look after all of those obligations. The timeline for incorporation, once paperwork is submitted to the Companies Registration Office, is anything between maybe five to ten business days, just depending on capacity at the CRO. The team, our corporate services group, can take responsibility for all of these obligations. In many ways, one of the trickiest questions for the client is deciding on a naming convention for the new company, which often clients can take quite a while to decide on what naming convention they’re going to commit to. 

Paddy Rath 

I’ve seen that. I’ve seen that for sure. Okay, so Irish CLO SPVs then, as we know, are typically established as orphan vehicles, meaning that the shares in the entity are held on trust, typically for charitable purposes. Is that share trustee service something you guys provide as well? 

Fiona de Lacy 

Yes, absolutely. We provide a nominee shareholding entity as part of our offering for the CLOs. That entity will enter into a declaration of trust in respect of the shares of the company, typically within a couple of days of incorporation, and we will continue to hold the shares in the SPV for the duration of the transaction. 

Paddy Rath 

Yeah. And so following incorporation, then your transaction management team will be heavily involved, I guess, in the execution process, right? At both warehouse and CLO stage. Once the SPV is up and running, what are the kind of day-to-day BAU workstreams that your team handle for the SPV? 

Fiona de Lacy 

Yeah, I’m very happy to give a quick overview. Once the SPV is established, we take care of various Irish compliance obligations, including but absolutely not limited to preparing and maintaining the annual financial statements, preparing and maintaining the statutory registers, including the register of beneficial owner, which is obviously a relatively new obligation over recent years. We attend to all the annual returns of the SPV. We prepare and file quarterly statistical reporting with the Central Bank of Ireland under the FVC regulation. We would then make various filings with the Revenue Commissioners in relation to tax, and equally with the Central Bank of Ireland. And then a number of other obligations, including FATCA and CRS compliance, market abuse obligations, Schedule 2 AML obligations, and if applicable, credit reporting obligations. So we will assist the SPV throughout its lifetime with these obligations as and when they arise. Most of this happens in the background and just seamlessly happens really, because our job is to stay one step ahead of any of the Irish compliance obligations. And we’re obviously significant experts in this area. But at times we need access to data, for example, from the collateral administrator or from the collateral manager. 

But it’s a really well-worn path. It’s quite predictable. And as long as you have deep and quality, in particular accounting experts, the process is very smooth and works well for our clients. 

Paddy Rath 

Yeah. I mean, so you’re effectively the legs and arms of the vehicle in Ireland, right? That’s what you guys are doing? 

Fiona de Lacy 

Absolutely. As the directors, we give it its Irish residency, its substance here, its management and control here. 

Paddy Rath 

Yeah. And I think, Fiona, one point that sometimes comes as something of a surprise to new Euro CLO managers is the statutory audit requirement that exists here in Ireland for the issuing vehicle. Managers who have Cayman SPVs, for example, may not be familiar with that. Can you talk us through the statutory audit process, the process involved, and I think how your team help with that process and their role? 

Fiona de Lacy 

Yeah, absolutely. But you’re correct, a CLO SPV is not eligible to avail of the audit exemption. So all CLO SPVs must prepare annual audited financial statements. That are then filed with the Companies Registration Office and then publicly available for anybody who wishes to look at them. The process is as you would expect for a set of financial statements. It is preparing a full set, which includes a balance sheet, income statement, cash flow statement, and all the various risk and fair value analysis notes. A key consideration for the auditors is the assessment of the reasonableness of fair value, which is the way in which CLO assets are carried on the balance sheet. In terms of timing of when financial statements are due, they’re typically due just shy of 11 months post-financial year end, although sometimes can be due slightly earlier depending on a number of other factors. Our team have significant experience in managing this audit process. Quite a number of us are ex-auditors. So our job is to prepare the financial statements and see them all the way through then to director sign-off at completion of the audit. We work closely with the collateral manager and the collateral administrator to get that data, But primarily, responsibility for seeing through to a set of financial statements being audited sits with the corporate service provider. 

Paddy Rath 

Brilliant. And so you and your team really drive that process then, liaising with the auditors, the manager, the collateral administrator, if necessary? 

Fiona de Lacy 

Yeah, absolutely. We are at the centre of that process, commencing it, managing it all the way through, and ensuring full completion and filing of the financials as required. 

Paddy Rath 

On time? 

Fiona de Lacy 

On time. 

Paddy Rath 

Every time? 

Fiona de Lacy 

Every time. 

Paddy Rath 

Brilliant. Okay, well, brilliant. Look, I know you and I would happily talk for the rest of the afternoon on this particular topic, but I am conscious that we are running out of time, so let’s wrap up. If you are giving advice to new CLO managers, what are your three top tips for new CLO managers coming to Europe in terms of the Irish SPV and managing the Irish SPV? 

Fiona de Lacy 

Three top tips. Okay, this might surprise people, but actually the KYC process is something that often delays transactions getting off the ground. Very often a client, a manager, and the transaction parties will be thinking about setting up a deal and working on all the commercials in the background, but only getting around to incorporating the entity just as the green light is about to go. It’s important that the entity is incorporated early in the process, and that the corporate service provider provides a thorough KYC pack to all relevant parties, and also pushes and drives through KYC completion with all transaction parties. Because there would be nothing more frustrating than a first deal being delayed because of a delay in completing KYC procedures, which of course are necessary for everybody to complete. That would definitely be top tip number one. Top tip number two, I would say if your SPV is expected to acquire either Italian or Spanish assets, it’s really important to apply early to get a Spanish NIF code or an Italian fiscal code early in the process. The process is not complicated, but it does take quite a few weeks, and interest withholding is not something anybody wants to have to deal with. 

Paddy Rath 

Yeah, yeah. 

Fiona de Lacy 

So it is very important that that’s applied for early on if there’s an expectation of those type of assets being in the portfolio. And perhaps finally, albeit on somewhat similar vein, it is important that you apply for the UK Double Taxation Treaty passport as early as possible. There have, over the last couple of years, at times been delays. It gets a little faster at times, but there is no benefit to delaying applying for that DTT passport. 

Paddy Rath 

Brilliant tips, Fiona. Thank you. That’s all we have time for today. Join us in the next episode where we turn to Irish tax considerations that will be relevant for those launching a European CLO platform. If you’d like some further information, please do not hesitate to contact me or visit arthurcox.com/clo. Thanks for listening.