www.pwc.ie/assetmanagement Asset Management Newsletter Welcome to the quarterly PwC Ireland asset management newsletter. In it we cover both local and international topics affecting the Irish funds industry. November 2014 Contents Ireland releases updated guidance notes on FATCA............................................................................. 2 Loan origination now permitted for Irish Alternative Investment Funds. .......................................... 5 IRISH UPDATES.................................................................................................................................... 7 Central Bank publishes final rules on loan originating QIAIF .............................................................................................. 7 AIFMD ...................................................................................................................................................................................... 7 EMIR - Treatment of FX Forwards FAQ. ...............................................................................................................................8 ICAV вЂ“ a new Irish Corporate Vehicle ....................................................................................................................................8 Fitness and Probity Regime .....................................................................................................................................................8 Companies Bill 2012 ................................................................................................................................................................ 9 Management Company Effectiveness ..................................................................................................................................... 9 Corporate Governance Code for Fund Service Providers .................................................................................................... 10 IFIA вЂ“ Memorandum of Understanding with ChinaвЂ™s AMAC ............................................................................................. 10 Cyber attackers turn their focus on hedge funds industry .................................................................. 11 Hedge Fund Administrators Face Cost Pressures............................................................................... 13 EUROPEAN UPDATES......................................................................................................................... 15 AIFMD Update ....................................................................................................................................................................... 15 ESMA issues revised guidelines on ETFвЂ™s............................................................................................................................. 15 Financial Transaction Tax ..................................................................................................................................................... 16 Statutory Audit ....................................................................................................................................................................... 17 Cross Border Mergers Consultation ...................................................................................................................................... 17 PRIIPS Update ....................................................................................................................................................................... 17 UCITS V Update ..................................................................................................................................................................... 18 EMIR Updates ........................................................................................................................................................................ 19 Money Market Funds ............................................................................................................................................................. 19 Contacts .............................................................................................................................................. 21 Ireland releases updated guidance notes on FATCA Rebecca Maher Tax Director +353 1792 8634 rebecca.maher@ie.pwc.com On 1 October 2014, the Irish Revenue Commissioners released updated Guidance Notes on the implementation of US Foreign Account Tax Compliance Act (FATCA) in Ireland (вЂњGuidance NotesвЂќ). These Guidance Notes replace the previous draft Guidance Notes issued in January 2014, and reflect a number of suggestions and clarifications requested by various industry groups. Revenue have previously indicated that the Guidance Notes are intended to be a living document and will be updated intermittently in order to reflect practical issues which may arise over time. Further categories of financial institution in scope FATCA applies to certain financial institutions, as defined. The Inter-Governmental Agreement (IGA) defines a financial institution as: 1. 2. 3. 4. A Custodial institution; A Depository institution; An Investment Entity; or A Specified Insurance Company. The Guidance Notes reflect the extended definition of a Reporting Financial Institution to include Relevant Holding Companies and Relevant Treasury Companies. This is in line with RevenueвЂ™s introduction of these categories in the Regulations which were released last June. The Guidance Notes clarify that such entities will be classified as Financial Institutions where they are part of a Financial Group i.e. a group which also contains a Custodial Institution, a Depository Institution, a Specified Insurance Company or an Investment Entity, or where they have a qualifying relationship with an Investment Entity. Holding companies and Treasury companies which are not part of a Financial Group should be classed as Non-Financial Foreign Entities (вЂњNFFEsвЂќ). New definitions and clarifications A number of new definitions are included in the Guidance Notes, including a definition of Passive Income for the purposes of identifying Passive or Active NFFEs. Furthermore, a new category of Direct Reporting NFFE has been introduced (similar to the US FATCA Regulations) to allow Passive NFFEs to report details of their beneficial owners directly to Revenue, instead of having to share such information with counterparties. This will allow such NFFEs to maintain the privacy of sensitive shareholder information. The wording around securities held in a Central Securities Depository (вЂњCSDвЂќ) has been clarified slightly to include CSDs other than CREST and to state that the CSD will not be treated as maintaining Financial Accounts. This will be relevant for Exchange Traded Funds and other funds whose shares are traded through a CSD. The Guidance Notes also discuss the use of a fund platform in certain cases and note that where legal title is held by the fund platform, the fund platform will be a Financial Institution in its own right and must comply with relevant due diligence and reporting requirements. The definition of Self-Certified Deemed Compliant Entities has been updated to include Investment Managers, where they are brought within the definition of an Investment Entity solely because they provide investment management services to a fund. This is in line with the exemption provided for in the US FATCA Regulations. Clarification is also provided on the role of the Responsible Officer noting that, in a Model 1 IGA jurisdiction such as Ireland, the US Treasury concept of Responsible Officer is not invoked. Irish Financial Institutions do not need to appoint a Responsible Officer when registering for a GIIN and instead are required to appoint a Point of Contact only. Page 2 Change of position in relation to regularly traded Debt or Equity Interests The January release of the draft Guidance Notes indicated that debt or equity interests of Investment Entities which were regularly traded were excluded from the definition of Financial Accounts. The draft Guidance Notes further clarified that an equity or debt interest would have been considered вЂњregularly tradedвЂќ if it was listed on a recognised stock exchange, and there was no requirement to show de minimis levels of trading annually. This meant that many Investment Entities, while falling within the definition of a Financial Institution, would be required to register for a Global Intermediary Identification Number (вЂњGIINвЂќ) but would submit nil returns each year on the basis that they had no Financial Accounts. The updated Guidance Notes have now changed that position. The revised wording states that an equity or debt interest that is listed solely for regulatory or similar purposes, but where there is clearly no intention to trade, should not be considered as вЂњregularly tradedвЂќ. The impact of this is that many Investment Entities whose debt or equity interests are listed for withholding tax or other purposes, but whose interests are not actually regularly traded, will now be required to treat those debt or equity interests as Financial Accounts and comply with all relevant due diligence and reporting requirements. It should be noted that the listed debt or equity carve-out will not apply under the OECDвЂ™s Common Reporting Standard (вЂњCRSвЂќ) and as such reporting of such accounts will be required in due course under the CRS. Compliance The Guidance Notes also provide details on the party responsible for ensuring compliance with the FATCA Regulations in the case of corporate funds, unit trusts and investment limited partnerships. Registration Reporting Irish Financial Institutions and Irish entities that qualify as Registered Deemed-Compliant Financial Institutions will use IRSвЂ™s FATCA Registration Portal to register. The revised Guidance Notes clarify that Collective Investment Schemes can choose to register for a GIIN at either umbrella level or sub-fund level. Where registration is done at the level of the umbrella fund, then reporting should also be done at the level of the umbrella fund. On the other hand, where individual sub-funds choose to register for separate GIINs, then reporting should be done on a subfund basis. The Guidance Notes also updated the provisions for Sponsored Investment Entities, most notably stating that the Sponsoring Entity (often the Investment Manager) must register the Sponsored Entity (i.e. the fund) with the IRS by the later of 1 January 2016 or the date that the fund identifies itself as a Sponsored Investment Entity. This is somewhat disappointing as it does not reflect the more lenient provisions in more recently signed IGAs, whereby Sponsoring Investment Entities are only required to register the sponsored funds with the IRS by the later of 1 January 2016 or 90 days after a US Reportable Account is first identified. Had these more lenient provisions been reflected in Irish Guidance Notes, it would have meant that there would be no requirement to register a sponsored Irish fund for a GIIN unless it had US Reportable Accounts. Notably, the 90 day provision has been introduced by Revenue in the case of Sponsored Controlled Foreign Corporations. We await clarification from Revenue as to whether this provision will also be extended to Sponsored Investment Entities. Due Diligence Under the IGA, Reporting Irish Financial Institutions are required to apply due diligence procedures to identify and report certain information on US Reportable Accounts and accounts held by Non-Participating Financial Institutions. The Guidance Notes provide a useful update which is intended to ease the burden of documenting investors who maintain accounts in multiple funds serviced by the same Transfer Agent. Transfer Agents may now obtain one set of FATCA due-diligence documentation for an investor to validate the same investorвЂ™s status in all funds serviced by that Transfer Agent. This is in line with customer identification requirements and practices under AML/KYC. With respect to self-certifications used by Financial Institutions in identifying US Reportable Accounts, the Guidance Notes state that such self-certifications can be in any format and includes the use of withholding certificates. This is a useful clarification for Financial Institutions who would prefer to use more simplified self-certification forms for their investors or accountholders rather than relying on US W-8/9 Forms, for example. Page 3 Reporting Once the due diligence has been completed, and the Reporting Irish Financial Institution has identified its US reportable accounts, information needs to be reported. The Guidance Notes include a useful timetable demonstrating the phased in approach to Reporting over the next three years. They also contain a link to the IRS Schema and provide details on the transmission of the report to Revenue via RevenueвЂ™s Online Service (вЂњROSвЂќ). Reporting can be done in US Dollars or in the functional currency of the Financial Account. The draft Guidance Notes had stated that the IRS may contact Financial Institutions directly in the case of minor errors. This has now been removed, and the updated Guidance Notes state that where reporting errors are discovered by the IRS, the IRS will contact Revenue directly who will liaise with the Financial Institution to resolve the issue. Recent FATCA Signatories The following countries have signed IGAs with the US since our June edition: вЂў вЂў вЂў вЂў вЂў Israel (signed Model I IGA 30 June 2014) Latvia (signed Model I IGA 27 June 2014) Lithuania (signed Model I IGA 26 August 2014) Poland (signed Model I IGA 07 October 2014) Sweden (signed Model I IGA 08 August 2014) Also since June, the following jurisdictions have reached agreement in substance with the U.S. regarding the terms of the IGA and have agreed to be treated as having a Model I IGA in place (beginning on the date included in parenthesis): вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў вЂў Algeria (30June 2014) Anguilla (30 June 2014) Bahrain (30 June 2014) Cabo Verde (30 June 2014) Greenland (29 June 2014) Haiti (30 June 2014) Malaysia (30 June 2014) Montenegro (30 June 2014) Serbia (30 June 2014) Ukraine (26 June 2014) The following jurisdictions have reached agreement in substance with the U.S. regarding the terms of the IGA and have agreed to be treated as having a Model II IGA in place (beginning on the date included in parenthesis): вЂў вЂў вЂў вЂў Iraq (30 June 2014) Nicaragua (30 June 2014) Moldova (30 June 2014) San Marino (30 June 2014) Now that FATCA is effectively localised for financial institutions in IGA countries, the local regulations and guidance notes will determine the FATCA requirements for each financial institution. Page 4 Loan origination now permitted for Irish Alternative Investment Funds. Colin Farrell Tax вЂ“ Senior Manager +353 1792 6345 colin.d.farrell@ie.pwc.com Introduction The Central Bank of Ireland has recently updated Irish regulation to permit asset managers to set up Irish loan originating funds in the form of Irish QIAIFs (which are Irish regulated alternative investment funds) with effect from 1 October 2014. The announcement is a positive development for investors, corporate borrowers and asset managers who have been seeking alternative lending structures to mitigate the impact of the funding gap in Europe arising from the deleveraging of banks. The announcement also shows IrelandвЂ™s commitment to product innovation in order to meet the needs of the ever evolving asset management industry. Background Europe has been slow to recover from the financial crisis, in contrast to the US which has shown clear signs of recovery. One of the key factors hindering EuropeвЂ™s recovery is the lack of credit available to fuel business investment and working capital as well as large scale infrastructure and real estate projects. Banks in Europe and the US are being squeezed by regulators, politicians and investors but the impact in Europe is more significant as business has historically been far more reliant on bank funding. It is estimated that banks in the US account for about 25 per cent of corporate lending compared to about 90 per cent in Europe. This, coupled with the deleveraging of European banks has led to a significant European debt funding gap. Non-bank finance has to play a major role in bridging this gap to assist in the recovery of the European economy. Ireland is seeking to address this issue by allowing regulated Irish fund structures lend to corporate borrowers. Regulation Loan originating QIAIFs will be subject to additional regulation which coupled with the existing AIF regulation is aimed at ensuring that a stable financial environment with adequate investor protection will exist. The proposed regulation recognises that the key objective of loan originating QIAIFs is to match investors and corporate borrowers with similar risk and maturity appetites in a regulated environment. The key areas addressed in the additional regulation include eligible activities, leverage, diversification, liquidity, credit assessment and disclosure. Eligible activities As well as carrying out loan origination activities, a loan origination QIAIF can also partake in loan syndication and participation as well as treasury management and the use of derivatives for hedging purposes. Other sub-funds within the QIAIF can have other strategies. Therefore, it is likely that a separate sub-fund would be used for other вЂњnon-loan originating strategiesвЂќ such as equity/bond investment. Page 5 Leverage Additional regulation around leverage seeks to alleviate any concerns around leverage being a potential source of cyclical vulnerability. The regulation sets a leverage limit on loan originating QIAIFs at a ratio of 1:1 which in simple terms means a QIAIF with assets of 100 may borrow 100. To the extent that the value of assets decline, the leverage limit must also be decreased accordingly which will result in the need for regular monitoring of the leverage limits to ensure that they are in line with market conditions. Limited leverage will also assist loan originating QIAIFs to become genuine alternative financing platforms for corporates as leverage is likely to ultimately stem from the traditional banking system which the proposal is seeking to provide an alternative to. Diversification The regulation states the QIAIF shall set out in its prospectus a risk diversification strategy which will limit exposure to any one issuer or group to 25% of the net assets. This is to be achieved within a specified timeframe or if not achieved, approval is sought from the unitholders to operate at the level of diversification which has been achieved. Furthermore, lending is restricted to corporate lending and QIAIFs will not be permitted to lend to individuals, connected parties, other funds, financial institutions or persons intending to invest in equities or other traded investments/commodities. There are also restrictions around the circumstances where a loan originating QIAIF can acquire a loan from a credit institution. Liquidity Loan originating QIAIFs will be closed ended to mitigate against the risk of investor runs and the implications thereof. However, there is recognition of the fact that there is a need to align the maturity of certain loan assets in a diversified portfolio with the return preferences of investors. Therefore, there is scope for a limited redemption facility within the regulations which enables the QIAIF to invite non-binding redemptions from unit holders and also to make distributions subject to having sufficient unencumbered assets. Credit assessment A key objective of the regulation is to ensure that loan originating QIAIFs have effective credit assessment policies in place as well as processes and controls to monitor the implementation on such policies. From an investor protection perspective, it is important that the QIAIF carries out appropriate credit risk due diligence on each proposed loan prior to entering into a loan agreement as well as the regular monitoring of the overall make-up of the loan portfolio. Disclosure The additional disclosure requirements seek to ensure that the prospectus and sales materials of a loan origination QIAIF include appropriate warnings which draw attention to the unique risks which arise from loan origination activity. Furthermore, periodic reports issued by loan originating QIAIFs must include detail of the profile of debt held, undrawn committed credit lines, loan to value ratio for each loan and other such information which will provide each investor with an accurate overview of the risk profile of the loan originating QIAIF. All information must also be made available on a non-discriminatory basis to all investors. Where information is seen as sensitive, it will be reported directly to the Central Bank of Ireland and not made publicly available. Summary With investors struggling to achieve satisfactory yields from traditional bond investment strategies and corporate borrowers seeking alternative funding from non-bank sources to meet working capital and business development needs, it is not difficult to see why directly originated loans have become an asset class which is generating significant interest from asset managers. The risk profile and maturity of loans required to meet the needs of businesses and real estate/infrastructure projects are likely to attract borrowers such as pension funds, insurance companies as well as many other professional/institutional investors. The robust regulation proposed in respect of Irish loan originating funds together with the existing infrastructure and expertise in Ireland at present means that Ireland is well positioned to promote itself as a domicile of choice for loan originating funds. Page 6 вЂў вЂў IRISH UPDATES Central Bank publishes final rules on loan originating QIAIF In late July 2014 the Central Bank of Ireland proposed regulation to allow Irish Alternative Investment Funds to originate loans for corporate borrowers. Given the current funding gap existing in Europe this is a very welcome development for corporate borrowers, investors and asset managers. It is estimated that while up to 90% of European debt funding is Bank originated the figure in the USA is approximately 25%. SMEвЂ™s who do not have the required scale to access bond markets are expected to benefit from this development. The Central Bank published the final rules for the new loan originating QIAIF in a updated version of the AIF Rulebook on September 18th, 2014. This follows a consultation (CP 85) which closed on 28 August 2014 and a discussion paper which issued last year. The Central BankвЂ™s feedback statement on CP 85 is available at: http://web.irishfunds.ie/administra tor/components/com_civicrm/civic rm/extern/url.php?u=60449&qid= 973991 The framework for the loan originating QIAIF is outlined in Section 4 of Chapter 2 of the AIF Rulebook. The loan originating QIAIF must have an authorised AIFM and key product requirements relate to: вЂў вЂў вЂў вЂў вЂў вЂў вЂў Due diligence by investors Diversification / eligible investments Stress-testing and reporting Liquidity and distributions Leverage Disclosure Valuation Prospectus A number of significant changes and clarifications were made following comments by IFIA in its response to CP 85. These relate primarily to eligible assets, non-public disclosure of sensitive information, investor due diligence and arrangements with respect to liquidity and diversification. The application of the вЂњskin in the gameвЂќ rules for banking relationships has also been clarified such that these do not apply to loans acquired at armвЂ™s length on the secondary market. The Central Bank intends to begin accepting applications for loan originating QIAIFs in the very near future. AIFMD AIFMD Q&A 10th Edition Released This update reflects clarifications made by a number of regulators and the ESMA. Issues addressed include the substitution of AIF units with payment in shares and issues related to the governing law of the AIFM agreement. Disclosures concerning leverage and remuneration policies are also covered. AIFMD Reporting Guidelines Guidelines and templates along with guidance notes have been published by the Central Bank for AIFM regulatory reporting. The guidelines contain information on reporting requirements, what must be submitted, procedures for a submission, prudential returns and minimum capital requirements report as well as other topics. The guidelines are available at: http://www.centralbank.ie/regulati on/industrysectors/funds/aifmd/Documents/AI FMD%20Reporting%20Guidance% 20v1.0.pdf AIFM Amendment Regulations A number of amendments to Irish Law have been made as a result of certain updates to the European Union (Alternative Investment Fund Managers) (Amendment) Regulations 2014. The UCITS Regulations and the AIFM Regulations have been amended with respect to the following issues: вЂў The implementation of the Credit Ratings Agencies Directives in Irish Law. вЂў The requirement for nonEU AIFMвЂ™s to apply to the Central Bank for approval. вЂў Compliance with certain requirements of MiFID For full details and a list of all the issues please see: http://www.irishstatutebook.ie/pdf /2014/en.si.2014.0379.pdf The Q&A can be viewed here: http://www.centralbank.ie/regulati on/marketsupdate/Documents/AIF MD%20QA%2010%20Final%20%2 0clean.pdf Credit granting, monitoring and management Page 7 EMIR - Treatment of FX Forwards FAQ. Several European Regulators have treated FX Forwards under EMIR differently across the EU. This has arisen due to different local implementations of the MiFID Directive. Because of these differences the European Commission has voiced its concern regarding the lack of a common definition of an FX Forward. In July ESMA published a letter on the matter. The letter states the need for a definition of financial FX instrument in EMIR reporting. Unfortunately for legal reasons the European Commission is unable to develop this definition using an implementation act. (It is expected that MiFID II will provide this definition in early 2017). While the letter does not provide a formal definition of an FX Forward it does however set out the following вЂњbroad consensusвЂќ on the definition of a FX Spot Contract. вЂў A settlement period of T+2 will be used to define FX spot contracts for all major and European currency pairs. вЂў For all other currency pairs a вЂњstandard delivery periodвЂќ will be used. вЂў In situations where contracts for the exchange of currencies are used for the sale of a transferable security then the settlement period applying will be the one associated with that security subject to a maximum of 5 days. вЂў FX contracts used as a means of payment for goods or services will be considered a FX spot contract. In the light of this letter the Central Bank of Ireland has updated its EMIR FAQ page. The FAQ outlines under what conditions and jurisdictions the FX transactions must be reported. http://www.centralbank.ie/regulati on/EMIR/Pages/FAQs.aspx ICAV вЂ“ a new Irish Corporate Vehicle The Irish Collective Assetmanagement Vehicle Bill was published by the Department of Finance on July 29th and is expected to be enacted before the end of 2014. The ICAV is a new type of investment vehicle designed specifically for both UCITS and AIFs. As a bespoke corporate investment fund vehicle a fund established as an ICAV will have the advantage that it will not be impacted by amendments to certain pieces of European and domestic company legislation which are not relevant or appropriate to a collective investment fund. The ICAV will have a board like a PLC but the memorandum and articles of association will be combined into a single document known as an Instrument of Incorporation. ICAVвЂ™s will be supervised by the Central Bank of Ireland and have the additional advantage of being able to elect its classification under US check-thebox taxation rules allowing them to be treated as transparent or flowthrough entities. Existing funds established as plcs will have the option to convert to ICAV status. However, it will not be possible to use the ICAV conversion procedure in respect of an existing UCITS or AIF unit trust, investment limited partnership or common contractual fund. The ICAV Bill moved to its second stage in the Irish parliament on 9/10/14 and is available here: http://www.oireachtas.ie/viewdoc.a sp?DocID=26838&CatID=59 Fitness and Probity Regime Amendments have been made by the Central Bank of Ireland with the introduction of 6 new Pre-Appoval Controlled Functions (PCFs). The new PCFs are: вЂў Chief Operating Officer (PCF-42) for all regulated financial service providers; вЂў Head of Claims (PCF-43) for Insurance Undertakings; вЂў Signing Actuary (PCF-44) for Non-Life Insurance Undertakings and Reinsurance Undertakings; Head of Client Asset Oversight (PCF-45) for Investment Firms; вЂў Head of Investor Money Oversight (PCF-46) for Fund Service Providers; вЂў Head of Credit (PCF-47) for Retail Credit Firms. The Amending Regulation also clarifies that regulated financial service providers cannot avail of the outsourcing exemption when outsourcing PCFs or CFs to certified persons. A briefing document has been issued by the Central Bank and can be found at: http://www.centralbank.ie/regulati on/processes/fandp/serviceprovider s/Documents/Guidance%20on%20 Fitness%20and%20Probity%20Ame ndment%202014.pdf Page 8 Companies Bill 2012 The Companies Bill 2012 (the вЂњBillвЂќ) completed Report Stage and Final Stage in the Seanad on 30 September 2014. The Bill consolidates 50 year of Irish legislation and EU Statutory Instruments and will make company law requirements easier to understand. The Bill creates several new types of companies, amongst them are Company Limited by Shares (CLS), Designated Activity Companies (DAC). The Bill is expected to come into force on June 1st 2015 and following this date all companies will have 18 months to choose between converting to a CLS or a DAC (or another suitable company type such as a public limited company) to ensure that its business needs are met in a legally robust manner. Companies not making any election will be deemed to be have become a CLS. It is anticipated that private companies regulated by the Central Bank of Ireland (i.e. UCITS management companies, AIFMs, insurance companies and companies registered under the European Communities (Markets in Financial Instruments) Regulations, 2007 (as amended) or the Investment Intermediaries Act, 1995) will need to convert to DACs before the end of the transitional period. The Bill streamlines several procedures. For example, DirectorsвЂ™ common law fiduciary duties have been codified and Company Law Offences categorised on a scale of 1 to 4. Also the introduction of new Summary Approval Procedures will remove the requirement to go to Court for certain transactions. The Bill can be viewed at: http://www.oireachtas.ie/viewdoc.a sp?DocID=22537 Management Company Effectiveness On Friday September 19, the Central Bank of Ireland published Consultation Paper 86 (CP 86), a вЂ�Consultation on Fund Management Company Effectiveness вЂ“ Delegate OversightвЂ™, with a closing date for responses of December 12, 2014. The CBI in addition to engaging industry experts on this have carried out specific reviews of management companies over recent months. This work has led to the following four proposed measures in the consultation: 1. Delegate oversight guidance The consultation proposes guidance for boards on the oversight of delegates such as investment managers and distributors. 2. Streamlining designated managerial functions There are proposed enhancements to the existing governance structure such as rationalising the current list of 15 designated functions under AIFMD to six functions. It is also proposed that UCITS management companies (and self-managed UCITS) managerial functions will similarly be rationalised to six. To ensure the availability of the necessary skillsets required to oversee these functions the CBI are relaxing their requirement to have two Irish resident directors. Firstly, the CBI are defining what Irish resident means (i.e. that a director will have to spend at least 110 working days in the country per annum). Secondly, it will be possible to replace one Irish resident director with a director who has the necessary competencies and who commits to making themselves available to the CBI if needed. 4. Rationale for board composition Under the proposed regime Boards will have to document the adequacy of their combined expertise and provide a rationale for the BoardвЂ™s composition, ensuring they have an appropriate balance of skills and competencies. They will also have to keep the effectiveness of the board under on-going review. The full consultation paper CP86 is available here: http://www.centralbank.ie/regulati on/marketsupdate/Documents/CP8 6%20Fund%20Management%20Co mpany%20EffectivenessDelegate%20Oversight.pdf 3. Irish resident directors requirement Page 9 Corporate Governance Code for Fund Service Providers The Central Bank of Ireland has been a strong advocate of good corporate governance and the ensuing benefits of transparency and risk mitigation. Recently the CBI has been actively promoting industry adoption of minimum standards of prudent corporate governance. In 2012 the CBI published a Corporate Governance Code for the Collective Investment Schemes and has now followed that with a Corporate Governance Code for Fund Service Providers (the вЂњCodeвЂќ). The CBI would like to see this Code adopted by all Fund Service Providers such as Custodians, Administrators and Depositaries. The Code was developed by The IFIA Corporate Governance group. The Code is not prescriptive but rather sets out principles and guideline of good corporate governance and oversight. The Code is based on current best international practices and can be expected to evolve over time. For the full text see: http://www.irishfunds.ie/fs/doc/publications/corporate-governace-booklet-8page-web-2.pdf IFIA вЂ“ Memorandum of Understanding with ChinaвЂ™s AMAC The Irish Funds Industry Association (IFIA) this week signed a Memorandum of Understanding (MOU) with the Asset Management Association of China (AMAC) in Beijing. The agreement is a significant positive step in promoting closer co-operation and better understanding between the respective industries in China and Ireland. It also encourages and supports greater international capital flows presenting greater opportunities for investors, and growth for the industries in both countries. Industry communication, information sharing, and reciprocal relationships are the key highlights in the MOU. This includes an agreement to promote mutual assistance and the exchange of information in all aspects of the asset management industry, covering areas such as regulatory developments, and sound practices to improve investor protection. Page 10 Cyber attackers turn their focus on hedge funds industry David M Kelly Senior Manager +353 1792 7045 david.m.kelly@ie.pwc.comm Background Cyber-attacks against IT systems are now commonplace with daily reports of significant data and financial loss in government and industry. The Asset Management industry is not immune from sophisticated cyber-attack targeting and is increasingly vulnerable to incoming cyber security threats from new directions and adversaries including attacks in the form of вЂњhacktivismвЂќ, corporate espionage, terrorism and criminal activity. Such attacks can cost time, resources and irreparable reputational harm. In our experience it is often the case that information security systems in asset management institutions are designed to meet minimum levels of regulatory or industry compliance rather than to provide effective, proactive cyber security safeguards to protect against increasing levels of cyber risk. In our view a more appropriate approach is one that recognises cyber risk management as a complex problem, requiring executive management engagement, ongoing governance, risk management techniques, threat correlation and collaboration throughout the organisation. The end objective should be that the organisation becomes вЂњcyber resilientвЂќ. Our view is supported by the SECвЂ™s Office of Compliance Inspections and Examinations (OCIE) recent announcement of its intention to conduct examinations of more than 50 registered broker-dealers and registered investment advisers. The goal of the examinations is to ensure the integrity of the markets and the protection of customer data. The broad scope of the examinations includes cyber-security governance and proactive identification and assessment of cybersecurity risks and is aligned with our view that executive teams and boards can no longer afford to view cyber security as merely a technology problem. What can be done? To become cyber resilient asset management organisations need to develop an integrated approach to cyber risk. In our experience the best approach is one where the executive team takes ownership of cyber risk so that information security and technology expertise can be combined with business management and risk disciplines with the result that cyber security becomes embedded in the organisation. A proven approach to developing cyber resilience capabilities is to establish a cyber risk management programme. A cyber risk management programme We recommend that executive management take the following steps when developing a cyber risk management programme: 1. Establish cyber risk governance Page 11 A governance framework is the foundation of a cyber resilient organisation. Establish the framework by allocating responsibility at an appropriate level, e.g. Head of Risk, Head of Compliance or CIO and ensure that adequate support is provided to develop the cyber risk management programme and reporting structure. Connections should be made to other risk programs such as disaster recovery, business continuity, and crisis management. 2. Understand your вЂњcyber boundaryвЂќ An organisationвЂ™s cyber vulnerabilities extend to all locations where its data is stored, transmitted, and accessed вЂ” by employees, outsource providers and clients. Consider how recent technology developments such as IT Outsourcing, Cloud Computing, Big Data, Analytics and Social Media may have extended your cyber boundary. 3. Identify your critical business processes and assets Determine what comprises your most valuable revenue streams, business processes, assets, and facilities, understand where they are located and who has access to them. 4. Identify and Assess Cyber Threats Threat analysis efforts can be disjointed when environments are spread across several functions, physical locations and systems. Establish a robust threat analysis capability that is built on shared intelligence, data and research from internal and external sources. Focus on three primary functions: collection and management, processing and analysing, and reporting and action. 5. Plan Develop action plans that can be invoked in the event of a cyber attack. The action plans should say who should take action, what their responsibilities are and exactly what they should do. ArenвЂ™t we doing this already? You may have some elements of a cyber risk management programme in place, however, in our experience, asset management organisations are at various levels of cyber resilience maturity for example: Area of Focus Lagging On Par Leading Cyber Risk Governance Limited insight into cyber risk management practices. Embedded in day-to-day activities. Cyber Boundary Unaware of where data resides. Little knowledge of third party access to data. No differentiation between non-critical and critical data. Minimal restrictions on data access. Established a threat-riskresponse framework but does not view cyber risk governance as a competitive advantage. Systems are designed to identify cyber threats at and within the physical perimeter. Understanding of the importance of data and appropriate measures to protect it. Access reviewed on an annual basis. Internal and external cyber risk assessments are performed on an annual basis. Asset Identification Identification and Assessment Cyber threat monitoring is disjointed and ineffective. Cyber risk management program includes thirdparty relationships and data flows. The organisation knows what data is critical, where it is located, and who has access at all times. Appropriate assessments of vulnerabilities to internal and external cyber risks are continuously performed. and it may be necessary to complete a gap analysis to identify any activities that should be undertaken to raise your cyber resilience capability to appropriate levels. Page 12 Hedge Fund Administrators Face Cost Pressures Ken Owens Asset Management Partner +353 1792 8542 ken.owens@ie.pwc.com Currently in the hedge fund industry over 80% of assets under management are administered by a third party. With this already high level of outsourcing the industry is maturing, growth potential is limited and the focus is now on cost reduction. Hedge fund administration (HFA) demand is triggered primarily by external forces such as the current post-crisis investor pressure placed on hedge funds to outsource their books and records. Organic growth in hedge fund administration will be challenging as firms are forced to compete for a relatively static group of clients. Any increase in demand that does occur is likely to be driven by the competitive forces now shaping the asset management industry. WeвЂ™ve found that four trends in particular appear poised to drive new growth in hedge fund administration (see below). As these trends take hold, administrators will invariably follow different paths toward growth, many of which will be influenced by such characteristics as size, ownership structure, and service mix. Small, undercapitalized administrators may focus on making improvements to both cost efficiency and their core competencies as a way to increase profit margins. And well-capitalized administrators, small or large, may pursue one or more of these four growth opportunities. However, itвЂ™s important for well-capitalized administrators to remember that their financial capital will enable the pursuit of growth, but it will not guarantee the creation of value. Achieving profitable growth and shareholder value creation will come from a strategy that focuses on creating and sustaining a competitive advantage. Four Trends to Drive HFA Growth 1. Increased need for regulatory reporting Demand for regulatory reporting services, such as AIFMD and Solvency II remains strong. 2. Manager and product convergence Ireland services alternative investment assets representing approximately 40% of global and 63% of European hedge fund assets. With recent developments on AIFMD the potential for growth in demand for hedge funds administration through AIFMD is significant. 3. Cost-efficient fee operations Asset managers are looking to become more cost-efficient in response to pressure from institutional investors. Administrators may want to develop new services that help asset managers achieve higher levels of operational and cost efficiency. 4. Expanded outsourcing Opportunities exist for administrators to offer private equity administration services. Presently 30% of US private equity administration is outsourced leaving plenty of potential for growth in this area. Estimated incremental revenue opportunity for the fund administration industry, based on achieving 50% outsourcing, is $660 to $880 million on an undiscounted basis for the period of 2014 вЂ“ 2018 in the USA alone. Strong growth is also expected in Europe in connection with the new AIFMD directive. Page 13 Hedge Fund Administration Industry Analysis Historically, many hedge fund managers opted to perform most or all administration functions using in-house staff. However, this model shifted to outsourcing following the wave of investment scandals that surfaced during the credit crisis. While this was initially driven by investor demands, hedge fund managers have found several benefits to outsourcing, such as: вЂў Cost avoidance: eliminating the need to invest manager capital to develop capabilities in non-core functions вЂў Cost control: the potential to transfer back-office costs from the manager to the fund вЂў Regulatory complexity: increased sophistication of regulatory reporting вЂў Transference of operational risk: transitioning the cost of operational errors to a third-party вЂў Pass-through benefits: benefitting from ongoing capital investments made by hedge fund administration firms in their platform вЂў Time-to-market: benefitting from an expanded set of features and functionality offered by HFAs The confluence of these factors led to a sharp increase in new outsourcing mandates, which fostered an environment of rapid growth for hedge fund administrators since the start of the economic crisis in 2006. Constraints on Organic Growth in Hedge Fund Administration Since 2006, the primary source of growth for HFAs was new back-office outsourcing mandates, however this no longer represents the most viable path to organic growth. Demand is limited by the following factors. вЂў Exogenous Demand: Demand drivers for the administration industry are exogenous, meaning they are triggered by external forces, primarily regulators. As such, achieving growth in the administration industry can be challenging, as firms are forced to compete for the relatively static group of constituents that buy the industryвЂ™s services. вЂў High Client Switching Costs: For the hedge fund managers that have outsourced back-office operations, the switching costs, which come in the form of transition costs and business risks, are relatively high. The associated disruption risks are a major concern for fund managers. Industry experience confirms that managers rarely switch administrators and the pool of fund managers actively seeking to switch administrators is very limited, fewer than 5% in fact. Constrained Growth leading to Price Competition The limited opportunities for growth have led to increased price competition among Fund Administrators and a greater desire by fund managers to negotiate lower fees. Since the credit crisis, institutional investors have increased the rate at which they negotiate lower management and performance fees with hedge fund managers. According to Deutsche BanksвЂ™ Alternative Investment Survey, over 70% of institutional investors reported negotiating fees with hedge fund managers in 2013. In response, hedge fund managers are reducing their own costs to offset the effect of management fee compression on their bottom line. Hedge fund administrators are a target of these cost efficiency initiatives because they often represent a large percentage of a hedge fund managerвЂ™s cost structure. There also appears to be an expectation among Fund Managers that administration charges should decline as assets under management increase. The Path Forward for HFAs The results of our industry analysis suggest that HFAs are at a crossroads. HFAs should consider the following two options as they formulate their next growth plan: 1) focus on providing new specialized services to hedge fund clients, or; 2) expand administration capabilities to include new services and/or new client segments. вЂў Focused Path: HFAs that choose to focus on hedge fund managers should target opportunities to leverage their core competencies as they develop new specialized services. вЂў Diversified Path: HFAs looking to diversify should offer expanded services, (e.g., regulatory reporting) and/ or target new client segments, (e.g., PE/RE managers). These HFAs should evaluate their competitive position and core competencies to determine whether a transition from focused to diversified is achievable. Page 14 EUROPEAN UPDATES breakdown and percentage volume for derivatives traded on regulated markets and OTC AIFMD Update Reporting guidelines go live ESMA published the official translations of its Guidelines on reporting obligations under AIFMD on 8 August 2014. Member State regulators then had two months to confirm their compliance with the guidelines or to explain why they have chosen not to comply. Presently 20 states have transposed the directive in to local legislation, 8 more are in progress and only 2 remain outstanding. Most firms will not need to complete their AIFMD reporting until January 2015. For example, if a firm was authorised in Q3 2014, its first reporting period under the ESMA guidelines will relate to Q4 2014 вЂ“ the first full quarter after it is authorised. ESMA updated Q&A on AIFMD Applications Published This Q&A question, published in September, replaces the last version from July 2014. The aim of this Q&A is to clarify issues relating to the application of the AIFMD. It is hoped that this publication will lead to a more uniform implementation of the Directive and clear up any issues surrounding the AIFMD rules. The latest additions deal with, amongst other topics, reporting to national competent authorities and depositaries. Regarding metrics to be reported to national competent authorities clarification is given as to the acceptable numerator to use in statistics such as geographical exposure, investment strategy markets. Reporting requirements surrounding liquidity ratios and following liquidation of the AIF are also explained. Numerous cash flow queries are answered in the Depositaries section. http://www.esma.europa.eu/syst em/files/20141194_qa_on_aifmd.pdf ESMA issues revised guidelines on ETFвЂ™s. The new guidelines concern the clear identification of UCITS as either ETF or non-ETF funds. For Exchange Traded Funds the term вЂњUCITS ETFвЂќ must form part of Page 15 the identifier and also appear in the Prospectus, Key Information Document and all marketing materials. Other points outlined in the document include: вЂў вЂў вЂў The Prospectus must state clearly, if applicable, how the Net Asset Value is calculated and the frequency of these calculations. If the UCITS ETF is actively managed then this must be clearly stated in all documentation and the underlying goal must also be specified. Where units purchased on the Secondary Market are not redeemable directly from the fund then a mandatory warning must be placed in the Prospectus and marketing information. The precise text is outlined in the guidelines below. The guidelines are available here: http://www.esma.europa.eu/cont ent/Guidelines-ETFs-and-otherUCITS-issues-0 Financial Transaction Tax Over the summer months some proposals have been made regarding possible means of collecting the tax. At a working party meeting in July a number of documents were produced by the Commission and discussed by the Member States: Firstly, the Commission delivered a presentation on the following potential FTT collection methods: (i) Self-administration - each Financial Institution determines pays and reports on FTT - similar to Belgium's tax on stock exchange transactions. (ii) Delegation model - similar to US QI regime. (iii) Central clearing / settlement - similar to UK and French stamp duties. (iv) Central utility regime comparable to reporting under Mifid and EMIR. highlighted that getting an agreement on the FTT will be a priority for their presidency. As part of his political program for his 5 year term, the newly elected Commission President, and former Luxembourg Prime Minister, Jean-Claude Juncker has also made a commitment to introduce the FTT. Despite such political goodwill, agreement on fundamental issues remains elusive and while a further political statement is expected at year end, agreement on key issues may not be forthcoming. Secondly, the Commission released a room document on the meaning of 'shares and some derivatives' the phrase used in the joint statement. The paper presents a detailed overview of the various categories of shares, shares substitutes and derivative contracts which could possibly fall under the scope of the tax. Finally, the Commission released a room document on issuance and / or residence as the basis for the tax. The Commission envisages adding elements from the issuance principle in order to strengthen the anti-relocation provisions of the residence principle and make additional transactions taxable. The Commission also considers that applying different principles to different products is not viable and it would increase the relocation risk and undermine the objective of having a harmonised FTT framework. Little progress on reaching agreement was reported from the working party meeting held on 25 September. In summary, the status of the EU FTT remains as fluid now as it was in our last update. The Italians have assumed the Presidency of the Council (1 July until 31 December 2014) and have Page 16 Statutory Audit New legislation to improve the quality of statutory audit across the EU has now entered into force. Key measures include strengthening the independence of statutory auditors, making the audit report more informative, and improving audit supervision throughout the Union. Stricter requirements will apply to publicinterest entities including all listed funds. The new legislation will become applicable in mid2016. The European Commission has published the following Q&A regarding the proposed changes to the European Statutory Audit, topics covered include rotation of the auditor and limits on fees for non-audit services. http://ec.europa.eu/internal_ma rket/auditing/docs/reform/1409 03-questions-answers_en.pdf In connection with this consultation you may also wish to view the Irish Department of Jobs, Enterprise and Innovations consultation on the matter available here. http://www.djei.ie/commerce/co mpanylawlegislation/publications .htm Cross Border Mergers Consultation The European Commission is launching a consultation on cross-border mergers and divisions in order to collect information, which would allow the Commission to assess the functioning of the existing EU legal framework for cross-border operations of companies and any potential need for changes in the current rules. It follows the 2012 Action Plan on European company law and corporate governance, which announced that the Commission would consider the appropriateness of amendments to improve the existing Directive 2005/56/EC on cross-border mergers and a possible initiative to provide a framework for cross-border divisions of companies. Consultation and submission details are available at: http://ec.europa.eu/eusurvey/ru nner/cross-border-mergersdivisions?surveylanguage=en PRIIPS Update Back in July 2012, the EU Commission issued proposals for a regulation on Key Information Documents (KID) for packaged retail and insurance based investment products (PRIIPS). In April of 2014, the European Parliament adopted the PRIIPS Regulation which will see the provision of a KID on a range of investment products. The objective of the KID is to provide retail investors with better information on the features and associated risks of the investment products. The standardisation of required information in the KIDs will make it easier for investors to inform themselves regarding PRIIPS products and make more informed comparisons and investment decisions. The KID will also ensure a level playing field between product manufacturers and retailers. The PRIIPS proposal aims to improve transparency in the investment market for retail investors. The proposal aims to ensure that retail investors are able to understand the key features and risks of retail investment products and to compare the features of different products, whilst ensuring a level playing field between different investment product manufacturers and those selling those products. The KID should be written in non-technical language and is required to be a stand alone document which allows the investor to inform themselves sufficiently regarding the product concerned without having to resort to additional sources of information. The proposed KID regulation is similar in concept to the already existing UCITS KID. The Joint Committee of the European Supervisory Authorities (EBA, ESMA and EIOPA) recently (10th October) released its 2015 Work Programme. Consumer Protection and Cross-Sectoral Risk Analysis have been assigned high priority for the coming year. ESMA will develop draft Regulatory Technical Standards (RTS) concerning disclosures for PRIIPS and on the content and presentation of the Key Information Document (KID). The timing of the delivery of the KID and any revisions will also be considered. EIOPA has been instructed to provide technical advice relating the PRIIPS KID Regulations. The Regulation is expected to come into force before the end of 2014 and become applicable by the end of 2016. See the following link for the Commissions advice request to EIOPA: http://ec.europa.eu/internal_ma rket/finservicesretail/docs/investment_products /20140730-request-eiopaadvice_en.pdf Page 17 UCITS V Update Directive Published The UCITS V Directive was published in the Official Journal on 28 August 2014. The main aim of UCITS V is to increase investor protection and avoid conflicts of interest. It introduces new requirements in three areas: вЂў вЂў вЂў remuneration вЂ“ setting out how fund managers and risk takers are paid their bonuses and how remuneration information should be disclosed in fund accounts depositaries вЂ“ introducing strict rules on who can be appointed as a depositary and the losses they are responsible for while assets are held in custody sanctions вЂ“ setting minimum fines and sanctions for UCITS managers that breach the UCITS Directive. The remuneration and depositary requirements largely build on AIFMD. Many UCITS managers have an AIFM in their group, so for them these new requirements should mean extending existing implementation programmes rather than having to start afresh. But some of the rules differ from AIFMD, so fund managers should not assume that they can just apply AIFMD style requirements to their UCITS funds. The new Directive entered into force on 17 September 2014. Member States must implement the new rules from 18 March 2016. While UCITS-V does not recast UCITS IV it does however contain amendments to UCITS IV and therefore both regulations need to be read together. A summary and checklist of UCITS V versus UCITS IV amendments and additions has been published by AIMA at the following address: http://www.aima.org/objects_sto re/ucits_v_summary__summary_for_members.pdf the event of its insolvency. ESMAвЂ™s proposals include the following steps to be taken by the third party: вЂў вЂў The text of UCITS V is available at: http://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CEL EX:32014L0091&from=EN UCITS V вЂ“ ESMA Safekeeping and Independence Consultation On 26 September, the European Securities and Markets Authority (ESMA) issued a 59-page consultation paper on draft technical advice (delegated acts) under the UCITS V Directive outlining how it intends to strengthen the existing depositary regime. ESMAвЂ™s consultation seeks stakeholdersвЂ™ views on proposals in two areas related to the depositary function: insolvency protection when delegating safekeeping and independence requirements. The consultation closed on October 24th. The consultation covers two areas: 1.Delegating of safekeeping UCITS V requires that where custody functions are delegated to a third party, all necessary steps are taken to ensure that the assets the third party holds in custody are unavailable for distribution in вЂў вЂў verify that the applicable legal system recognises the segregation of the UCITSвЂ™ assets from those of the third party (which is not located in the EU) and that of the depositary; recognise that the UCITSвЂ™ segregated assets do not form part of the third partyвЂ™s estate in case of insolvency and are unavailable for distribution among or realisation for the benefit of creditors of the third party (if the latter is not located in the EU); always maintain accurate and up-to-date records and accounts of UCITSвЂ™ assets that readily establish the precise nature, amount, location and ownership status of those assets; maintain appropriate arrangements to safeguard the UCITSвЂ™ rights in its assets and minimise the risk of loss and misuse. 2. Independence proposals UCITS V provides that both the UCITS management company and its depositary need to act independently and solely in the interest of the fund and its investors. In order to implement this independence requirement, ESMA proposes a combination of measures based on i) management/governance and ii) structural links. Some of these are aligned with existing requirements in Ireland, e.g. prohibition on common board Page 18 membership between the UCITS management company and the depositary. ESMA is also considering prohibitions on: вЂў вЂў the management company having a direct or indirect holding in the depositary or vice-versa; the management company and the depositary being included in the same group for the purposes of consolidated accounts. A second option would allow the above, subject to further independence safeguards where these situations arise. ESMA intends to finalise this technical advice to the European Commission by November 2014. See the following link for additional details: http://www.esma.europa.eu/cons ultation/Consultation-delegatedacts-required-UCITS-V-Directive EMIR Updates Central Clearing Consultation In July ESMA launched a first round consultation process for the central clearing of certain OTC derivatives in the EU. Stakeholders views were sought regarding the proposed technical standards for the clearing of Interest Rate Swaps and Credit Default Swaps which will be developed under EMIR. ESMA launched this consultation with the goal of reducing systemic risk for certain OTC derivatives classes. Central Clearing Houses will be authorized by European or Third Country National Competent Authorities and certain classes of OTC Derivatives will then be obliged to use these central clearing facilities. EMIR will outline a process by which the relevant classes will be identified. http://www.esma.europa.eu/syst em/files/ccps_authorised_under _emir.pdf The current draft Regulatory Technical Standards propose central clearing for the following IRS classes: Updated EMIR FAQ Issued by the European Commission Basis swaps, Fixed-to-float interest rate swaps, Forward rate agreements, Overnight index swaps. For CDS: European untranched index CDS. For further information,please see: http://www.esma.europa.eu/new s/Press-release-ESMA-definescentral-clearing-interest-rateand-credit-default-swaps IRS Consultation Paper: http://www.esma.europa.eu/syst em/files/esma-2014-799_irs__consultation_paper_on_the_cle aring_obligation_no__1____.pd f CDS Consultation Paper: http://www.esma.europa.eu/syst em/files/2014-800.pdf Central Counterparties Listing ESMA has added BME Clearing to its list of authorised central counterparties (CCPs) under the European Markets Infrastructure Regulation (EMIR). For a full list of Central Counterparties authorised to offer services and activities in the Union please see: In July the latest EMIR (Part IV) FAQ was issued. Updates concerning segregation requirements for non-EU clearing members of EU CCPвЂ™s. The FAQs here is available here: http://www.esma.europa.eu/syst em/files/2014-815.pdf Money Market Funds US Reforms On July 23rd the SEC adopted itвЂ™s MMF Reform. The final reforms combines approaches set forth in the SEC's proposal last summer to: (1) require institutional prime MMFs to float their Net Asset Values (NAV) and (2) provide tools to all MMF boards to discourage and prevent runs by investors through the use of redemption fees and gates. A key necessity for reaching the SEC's 3-2 vote in favour of the rule was the Treasury Department's and IRS's concurrent issuance of rules mitigating the tax compliance costs for institutional prime MMFs investors. For further discussion of the key impacts of the reform please see: http://download.pwc.com/ie/pub s/2014-flash-news-10-key-pointsfrom-the-secs-final-us-mmfrule.pdf Page 19 EU Regulation Proposals The EUвЂ™s Economic and Financial Affairs Council (ECOFIN) is scheduled to meet on December 9th to discuss General approach on the proposed Regulation on Money Market Funds. The EUвЂ™s proposal to regulate Money market Funds is available here: http://ec.europa.eu/internal_ma rket/investment/money-marketfunds/index_en.htm#130904 http://www.esma.europa.eu/cont ent/Review-CESR-guidelinesCommon-Definition-EuropeanMoney-Market-Funds Reduce MMF reliance on Credit Rating Agencies ESMA published a review of the CESR guidelines on a Common Definition of European MMFs on 22 August 2014 in which it assesses whether the existing CESR guidelines on MMFs are compliant with the CRA III prohibition on mechanistic reliance on a CRAвЂ™s credit ratings. MMFs must perform their own assessments on the credit quality of investments to ensure that they are of an appropriate quality. The assessments should still take into account any external credit ratings while at the same time avoiding exclusive reliance on them, which had previously been permitted. A manager should make an independent reassessment after any significant downgrade, subject to specific criteria. ESMA wants national regulators to take note of its amendments to the CESR guidelines, although as the guidelines are not being reissued regulators will not need to formally comply or explain again. ESMA plans to review compliance across the EU to determine any outliers. Page 20 Contacts The Regulatory Advisory Services team are happy to address any questions you might have on any of these topics. Regulation Specialist Ken Owens +353 1 792 8542 ken.owens@ie.pwc.com Corporate Governance Sarah Hayes +353 1 792 7323 sarah.n.hayes@ie.pwc.com ETFs Aoife OвЂ™Connor +353 1 792 8527 aoife.oconnor@ie.pwc.com Fund Distribution Anne-Marie Sharkey +353 1 792 6273 anne-marie.sharkey@ie.pwc.com Hedge Funds James Conaghan +353 1 792 8522 james.conaghan@ie.pwc.com Loan Funds Colin Farrell +353 1 792 6345 colin.d.farrell@ie.pwc.com UCITS David OвЂ™Connor +353 1 792 5366 david.a.oconnor@ie.pwc.com Money Market Funds Sarah Murphy +353 1 792 8890 sarah.murphy@ie.pwc.com Suzanne Senior +353 1 792 8547 suzanne.senior@ie.pwc.com Private Equity Catherine Chambers +353 1 792 8975 catherine.chambers@ie.pwc.com Joe OвЂ™Neill +353 1 792 7501 joe.j.oneill@ie.pwc.com Real Estate Ilona McElroy +353 1 792 8768 ilona.mcelroy@ie.pwc.com Tax Rosaleen Carey +353 1 792 8756 rosaleen.carey@ie.pwc.com Page 21 www.pwc.ie/assetmanagement This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. В© 2014 PricewaterhouseCoopers. All rights reserved. PwC refers to the Irish member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.