Cayman Islands: Central Bank Of Ireland Highlights Key Investment Funds Issues For Current Market Uncertainty

On 30 April 2020, the Central Bank of Ireland ("Central Bank") published a letter to fund management companies (including SMICs) highlighting some key issues for investment funds in light of ongoing market uncertainty due to Covid-19. The letter refers to the regulatory flexibility already provided in terms of reporting and that the Central Bank has clarified that it will apply the measures set out by ESMA in recent weeks.

The key issues detailed by the Central Bank are:

• liquidity management - reiterating the expectation set out in its industry letter of August 2019 that boards and designated persons need to assess the liquidity position of each fund under management, ensuring that the liquidity of the investment portfolio remains in line with the respective fund's redemption policy taking into account investors' potential redemption demands. The Central Bank's expectations in the context of recent market conditions are that effective liquidity management includes an assessment as to whether a fund has appropriate liquidity management tools in place. This assessment should take into account dealing frequency, investment strategy, portfolio composition and investor profile of the fund. If it is considered necessary to expand the tools available or make other changes to address liquidity risk, steps should be taken to amend the relevant fund documentation and notify investors of the changes (including information on any potential risks or costs) with sufficient time for investors to redeem prior any changes becoming effective;
• Central Bank UCITS Regulations / AIF Rulebook - the Central Bank understands that, in light of recent market volatility, breaches of requirements set out in the Central Bank UCITS Regulations or the AIF Rulebook may be identified. It expects fund management companies to minimise the potential for breaches, ensure that such breaches are reported to the Central Bank and remedied as a priority and consider whether such breaches need to be notified to investors;
• investor disclosure - as part of its obligations to ensure risks are identified, monitored and managed during this time, fund management companies may have identified a risk (or potential risk) which may warrant additional disclosure to investors (or potential investors). Where such risk is not already covered by existing prospectus disclosure and it may have a material effect on an investment made by an investor in a fund, a fund management company should consider the extent to which the additional risk (or potential risk) should be brought to investors' attention in the prospectus;
• minimum of two directors that are Irish residents - in the event of incapacitation of an Irish resident director on the board of a fund management company or fund, the Central Bank recognises that there may be a delay in finding a replacement due to the COVID-19 pandemic. The Central Bank has set out information on addressing vacancies which might arise for PCFs during this period;
• data collection for UCITS and AIFs - the Central Bank notes the importance of reliable supervisory reporting and that in response to Brexit it had already increased its monitoring of investment funds liquidity and redemption activity. It further notes that these arrangements have remained in place and in some instances have been supplemented.

Further information will be published by the Central Bank as considered necessary.