In this issue we consider a number of recent Central Bank updates including some of its post-Brexit requirements for UK Investment Managers and UK AIFMs, its recent consultations on performance fees and on changes to the AIF rulebook in relation to permissible features of closed-ended AIFs, and some clarifications for unit trust funds in respect of their central register filings. We also note the passing of the Investment Limited Partnerships (Amendment) Bill and consider the implications for investment funds following the Central Bank’s thematic inspections on Fitness and Probity.

If you would like to discuss any of the topics covered, please feel free to contact a member of our team.

Brexit Update: Central Bank and FCA Statements

Central Bank Sets Out Post-Brexit Requirements for UK AIFMs and Investment Managers

The Central Bank has set out some post-Brexit requirements applicable to UK AIFMs and UK investment managers.

The Central Bank has confirmed that UK investment managers that are currently acting for Irish entities will be required to notify the Central Bank in relation to the change of their regulatory status following the end of the Brexit transition period. However, this notification may be made after the change in the entity’s status rather than in advance.  For new appointments, UK investment managers will be considered as non-EU investment managers and will be subject to the full review process applicable to non-EU investment managers.

The Central Bank has also issued guidance for UK AIFMs currently marketing AIFs in Ireland. The guidance clarifies that UK AIFMs (who will be non-EEA AIFMs post the transition period) are required to notify the Central Bank under Regulation 43 of the AIFMD Regulations 2013. If the notification is submitted to the Central Bank on or before 1 January 2021, it will be effective from that date and the UK AIFM can commence marketing. However, the Central Bank has stated that depending on the volumes of applications, the AIFM may not receive the clearance email immediately. The notifications can be submitted in advance, but they will not be processed until on or after 1 January 2021. The Central Bank has also stated that for those entities that were previously operating under a passport that less onerous regulatory checks will be carried out with respect to their Regulation 43 notifications. There is no requirement for a non-EU AIFM (or relevant AIF) to appoint a depositary in order to market its AIFs to professional investors in Ireland.

The Central Bank has also advised that any Regulation 35 applications in respect of Irish AIFMs currently managing UK AIFs (under Regulation 34) should be submitted as soon as possible. The Central Bank is anticipating a high volume of applications and therefore may not immediately be able to process the application.

FCA Publishes Updated TPR Guidance

On 3 December 2020, the FCA updated its guidance regarding the temporary marketing permissions regime (“TMPR”). The updated guidance sets out the FCA’s proposed process around adding a sub-fund to a scheme that is already in the TMPR once the Brexit transition period ends.

To use the regime:

  • the new sub-fund must become authorised by its home state regulator on or after 31 December 2020;
  • when the new sub-fund becomes authorised by its home state regulator, at least 1 other sub-fund of the new sub-fund’s umbrella scheme must be a recognised scheme in the TMPR;
  • after the new sub-fund becomes authorised by its home state regulator and while at least one other sub-fund of the umbrella scheme continues to be so authorised, the operator of the new sub-fund must have notified the FCA that they wish the new sub-fund to enter the TMPR; and
  • the notification must be made before the start of the period specified by the FCA directing the new sub-fund’s umbrella scheme to apply for individual recognition under section 272 of the Financial Services and Markets Act 2000.

The FCA plans to issue a direction on 31 December 2020 setting out the information that will be needed to make a valid notification of a new sub-fund. In the interim, the FCA has published a draft version of this direction and a draft notification letter for information purposes only and these documents are subject to change.

Beneficial Ownership: Filing Deadline and Unit Trust Update

Both unit trust funds and ICAVs must file their beneficial ownership information with the Central Bank (as registrar) for inclusion on its Register of Beneficial Ownership of Certain Financial Vehicles (the “CFV Register”). ICAVs and unit trust funds in existence as at 25 June 2020 must make their filings by 25 December 2020, and newly established entities must file the information within six months of their date of authorisation. The following details must be included in respect of all beneficial owners: name; date of birth; nationality; whether the person’s interest/control is direct or indirect; the nature of the interest/control; the extent of interest/control (percentage owned or controlled); further information on the nature/extent of ownership/control; the date on which the person was entered into the entity’s internal register as a beneficial owner; and whether the beneficial owner is currently a PCF holder in the entity, or any other Regulated Financial Services Provider. Where no beneficial owner can be identified, an ICAV must include the details of its senior managing officials.

However, the same requirement to include the details of senior managing officials does not apply to unit trusts under the legislation. The Central Bank, however, has clarified its expectations with regard to unit trusts in its recently updated Beneficial Ownership Register FAQs, which specify the information to be included on the register where no beneficial owner of the unit trust can be identified.

The Central Bank notes that a beneficial owner of a unit trust fund is (a): a natural person who owns, or is ultimately entitled to control more than 25% of the units in the trust; or (b): any other natural person exercising ultimate control of the trust by direct/indirect ownership, or by other means. This includes any trustee or settlor. Therefore, a natural person must be identified in accordance with limbs (a) or (b) of the definition. The trustee/settlor whether they are a natural person or a corporate entity must also be identified.

In respect of limb (b) above, a natural person must be registered who exercises “ultimate control over the entity by means of direct or indirect ownership or by other means”.  Ultimately, it is a matter for each party to determine who this is but may be a person in the trustee or management company who, in respect of the unit trust, exercises such a role, for example, the most senior PCF in the trustee firm or management company.

Therefore, details of:

  • the natural person(s); and
  • the trustee/settlor (as applicable).

should be included in the submission to the register.

CP86 Review: Clarification on Central Bank Expectations

As previously reported, in October 2020 the Central Bank published its findings (“Findings”) from the review of its Fund Management Company Guidance (commonly referred to as “CP86”). The most significant findings related to substance and governance. In the Findings, the Central Bank stated that all fund management companies (including self-managed investment funds) (“FMCs”) should have a minimum of three FTEs (full-time employee or equivalent to full time employee) and should appoint locally based Designated Persons (“DPs”) and other staff who have sufficient time to dedicate to their roles and responsibilities, including delegate oversight.

Following the publication of the Findings, the Central Bank received several queries with regard to its resourcing requirements in the context of the “location rule”, as set out in Regulation 104 of the Central Bank UCITS Regulations 2019. On 8 December 2020, the Central Bank issued a letter to industry to address these queries and to clarify its expectations. In its communication the Central Bank restated its position with regard to effective supervision, substance, and presence in Ireland.

Effective Supervision

The Central Bank notes that the “Effective Supervision Rule” or “location rule” sets out the requirements with regard to the residency of a certain ratio/number of directors and DPs. The Central Bank has stated that the Findings do not amend this rule and that as a breach of this rule is a breach of the FMC’s legal obligations, it must be complied with at all times. Under the location rule, a minimum of two directors must be Irish resident and half of the FMC’s managerial functions must be performed by at least two DPs resident in the EEA or such other country as determined by the Central Bank. (These are the minimum director requirements for a FMC with a PRISM rating of “low”, which will apply to most FMCs. However, a FMC with a PRISM rating of “medium low” or above is required to have either three Irish resident directors, or two Irish resident directors and one Irish resident DP).


In its Findings, the Central Bank stated that it expected all FMCs to have a minimum of three FTEs, each of whom is suitably qualified and of appropriate seniority to fulfil the role. This number is only relevant for the smallest and simplest of entities. Other firms will be expected to have a number of FTEs as determined by the nature, scale and complexity of their operations. With regard to DPs, the Central Bank expects FMCs to appoint locally-based DPs and in larger FMCs, DPs are expected to be full-time roles. In its industry letter, the Central Bank has reiterated these requirements and noted that where DPs are not full-time roles that there should nonetheless be sufficient support and resources available to the individual to enable the role to be discharged. FMCs should detail their particular approach to substance requirements in their CP86 action plans.

Presence in Ireland

FMCs must appoint locally-based DPs and other staff with sufficient time dedicated to their roles in order to fulfil their duties including the oversight of delegates. In its letter, the Central Bank notes that when describing the role of a DP, CP86 is clear that the role-holder is responsible for the management of the FMC on a day-to-day basis. The Central Bank goes on to state that for an Irish-authorised entity, its management must take place in Ireland and “it is difficult to see how a fund management company could be located in Ireland unless a clear and convincing preponderance of the firm’s Designated Persons and management roles (including key roles) are performed within the jurisdiction”.

In its communication, the Central Bank acknowledges that the travel restrictions in place due to the COVID-19 pandemic present an extraordinary set of circumstances where health protection measures are impacting on individuals’ ability to carry out their functions on location, and the Central Bank will apply flexibility in the context of this evolving situation.

Next Steps

All FMCs are required to develop appropriate action plans to meet the Central Bank’s expectations as set out in its Findings. These action plans must be approved by the FMC board by the end of Q1 2021 and the FMC must also include its approach to substance in these plans. The Central Bank notes that FMCs should take into account the effective supervision requirement, the minimum substance requirements, their own particular resourcing requirements, and their presence in Ireland together with any other relevant considerations.

Investment Limited Partnerships (Amendment) Bill 2020 Passed

As previously reported, in September 2020, the Minister for Finance introduced the Investment Limited Partnerships (Amendment) Bill 2020 (the “ILP Bill”), which will modernise the Irish investment limited partnership structure and bring it in line with comparable partnership vehicles in other leading jurisdictions. Over the past months, the ILP Bill has been progressing through the legislative process and on 17 December 2020 the legislation was passed. The next step is for the President to sign the ILP Bill to enact it. Once enacted a commencement order will also be required for the Act to come into operation.

The Central Bank is currently consulting on changes to its rulebook in relation to permissible features of closed-ended AIFs. These changes, together with the passing of the ILP Bill, will enhance the attractiveness of Ireland as a jurisdiction for funds pursuing private equity, private credit, real asset and related strategies.

Central Bank Proposes Guidance on Share Class Features of Closed-ended QIAIFs

On 23 November, the Central Bank issued consultation paper 132: Guidance on share class features of closed-ended QIAIFs (“CP132”) concerning proposed changes to its AIF rulebook that will be of particular interest to funds that invest in private equity, credit and other private asset investment strategies. The Central Bank is proposing guidance concerning share-class features for closed-ended AIFs. In summary, the key elements of the proposed guidance include:

Scope: the Central Bank is proposing to limit availability of these features to closed-ended AIFs authorised as Qualifying Investor AIFs (“CE QIAIFs”) with strategies which are generally described as relating to private equity, venture capital and real estate and which generally do not invest in assets that must be held in custody in accordance with the AIFMD or which generally invest in issuers or non-listed companies in order potentially to acquire control over such companies in accordance with the AIFMD. This takes account of the nature of closed-ended AIFs, in particular the commitment made by investors in terms of capital drawdowns.

Investor protections: The Central Bank considers that the availability of the share class features outlined in the consultation should be subject to certain investor protections. These are described in detail in the draft guidance.

Share class features: the consultation proposes to permit a CE QIAIF to issue share classes which permit (i) the profit, loss and capital of certain assets to be allocated to certain share classes, (ii) subject to certain conditions, investors to participate in some, but not all the assets of the CE QIAIF and (iii) management share classes to participate in the CE QIAIF and receive returns which are greater than, but subordinate to, the returns to which other share classes are entitled.

The consultation closes on 22 December 2020.

Additionally, the Central Bank updated its AIFMD Q&As (IDs# 1134 and 1135) to note the discontinuation of the practice of requiring general partners of investment limited partnerships (“ILP”) to be approved by the Central Bank as AIF management companies. As a regulated financial services provider, the general partner of an ILP is still subject to Central Bank’s fitness and probity regime, but will not otherwise be required to be authorised by the Central Bank.

Performance Fees: Central Bank Issues Draft Guidance

As reported last month, ESMA’s guidelines on performance fees in UCITS and certain types of AIFs (the “ESMA Guidelines”) will take effect from 5 January 2021. On 3 December 2020, the Central Bank issued a consultation (“CP134”) setting out how it intends to incorporate the provisions of the ESMA Guidelines into the existing domestic framework on performance fees.

In CP134 the Central Bank notes that the existing regime, which is set out in the Central Bank UCITS Regulations 2019 and the AIF Rulebook, provides strong protections for investors and continues in force notwithstanding the ESMA Guidelines, which supplement the existing regime in certain respects. Therefore, the Central Bank intends to publish specific guidance (“Performance Fee Guidance”) that incorporates the ESMA Guidelines as far as possible. There are some divergences between the Central Bank’s existing requirements and the ESMA Guidelines and the consultation specifically notes that due to certain provisions of the Central Bank UCITS Regulations 2019 that it is not currently possible to provide for:

  • a performance reference period that is less than the life of the fund;
  • crystallisation of performance fees more frequently than annually for HWM models with a reference period of the life of the fund; or
  • fulcrum fees.

Schedule A to CP134 sets out those elements of the ESMA Guidelines that are being included in the Performance Fee Guidance under the following headings:

  • performance fee calculation methodology;
  • consistency between the performance fee model and the fund’s investment objectives, strategy and policy;
  • crystallisation frequency;
  • negative performance recovery; and
  • disclosure.


It is proposed that for:

  • new UCITS and in-scope retail AIFs that the Performance Fee Guidance will apply from the date of establishment;
  • existing UCITS and in-scope retail AIFs that amend or introduce a performance fee, the Performance Fee Guidance will apply from the date of amendment/introduction; and
  • existing UCITS and in-scope retail AIFs with performance fees, the Performance Fee Guidance will apply from the next accounting period 6 months after 5 January 2021. Until that time, those funds must comply with the Central Bank’s current requirements.

Respondents to CP134 are asked to comment on whether they agree with the Central Bank’s approach, which, notwithstanding that the ESMA Guidelines could be applied in full to these funds, is also intended to apply to retail AIFs. The reasoning behind this approach is to maintain consistency between the approaches to performance fees for both classes of retail fund. The consultation closes on 15 January 2021.

For more information on the ESMA Guidelines, please see our previous briefing here.

The Central Bank’s Fitness and Probity Findings: Implications for Funds

On 17 November 2020, the Central Bank issued a ‘Dear CEO’ industry letter following its thematic inspections of compliance with its Fitness and Probity Regime. Although the inspections were carried out in the insurance and banking sectors, the Central Bank’s findings are also of relevance for the wider financial services industry. Fund management companies, SMICs and externally managed funds, as well as other regulated fund service providers, need to review the industry letter to assess their compliance with the findings and observations identified by the Central Bank and, where necessary, take steps to remediate any identified issues or weaknesses in their compliance with the Central Bank’s Fitness and Probity requirements. The Central Bank also expects firms to be able to evidence the appropriate actions taken to address the issues raised in the industry letter, if requested.

For more information, please see our more detailed briefing here.