On 12 September 2012, Matthew Elderfield addressed the Irish Funds Industry Association's annual conference in Dublin to speak about the Central Bank's agenda for the future regulation of the Irish funds industry.
Mr. Elderfield mentioned the importance of having an appropriate regulatory framework to provide investor protection and maintain the reputation of the Irish Financial Services Centre and the funds industry. He noted that recent EU initiatives in respect of financial services have provided an opportunity for the Central Bank to re-examine certain elements of the domestic framework. In particular, the implementation of the Alternative Investment Fund Managers Directive (AIFMD) in Ireland has prompted the Central Bank to undertake a review of the existing regulatory regime for non-UCITS. In particular, he said that the following matters were under consideration:
- whether a new category of fund should be established, which would be based on the minimum standards of the AIFMD. This new category of fund would be fully compliant with EU standards for passporting, and would avoid any additional domestic requirements other than those directly required by existing Irish law.
- a rigorous reassessment of the current QIF regime and the extent to which this should be adjusted to reflect the provisions of the AIFMD. He mentioned by way of example that the Irish requirements in respect of directed brokerage programmes could be disapplied where rules on conflicts of interest, best execution and annual account disclosure under the AIFMD provide adequate comfort to investors.
- the removal of the current promoter regime in respect of QIFs, to be replaced by the requirements applicable to fund managers under AIFMD and possibly further guidance on what is expected of directors of funds which run into financial or operational difficulties.
- Mr. Elderfield also noted that the Central Bank is conducting a review of its fund authorisation procedures and hopes to move more fully towards the electronic filing and processing of authorisation documentation.
From a supervisory perspective, Mr. Elderfield stated that the Central Bank focuses its supervision efforts on fund service providers – administrators and custodians - as opposed to individual funds. As part of this supervisory model, he referred to the success of the recently-adopted Probability Risk and Impact System (PRISM), which was brought in by the Central Bank to calculate the level of risk supervision necessary in respect of regulated entities operating in the Irish funds sector.
Finally, Mr. Elderfield referred to the recent financial crisis, and the systemic risks posed by money market funds (MMFs). He expressed doubts that a mandatory switch from constant net asset value to variable net asset value adequately addresses the probability of investor runs on MMFs. Instead, he proposed that regulatory reform should be introduced which would bring in measures such as the introduction of capital buffers, dilution levies for existing investors, and tighter liquidity measures.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
