12 Days of Christmas Legal, Regulatory and Tax updates

12. Financial Markets Regulatory Outlook 2017

Our annual assessment from Deloitte’s Centre for Regulatory Strategy, EMEA, delves into the challenges and opportunities arising from the key regulatory issues facing the financial services industry in 2017. In analysing each issue, we also offer a sector-specific view on the impact for banking and capital markets, investment management and insurance.

11. Money Market Funds Regulation

On November 16, 2016, the EU Council and European Parliament agreed a draft text of the Money Market Funds (“MMF”) Regulation ("MMFR"). MMFR rules will apply to UCITS or Alternative Investment Funds MMFs. The text is not final and there may be technical changes to the draft before MMFR is passed. However the text establishes that there will be 3 types of authorised MMFs 1) Low Volatility Money Market Fund (“LVNAV MMF”), Public Debt Constant Net Asset Value Money Market Fund ( “CNAV MMF”) and Variable Net Asset Value Money Market Fund (“VNAV MMF”).

10. General Data Protection Regulation ("GDPR")

The new General Data Protection Regulation (“GDPR”) has now been voted into law by the European Parliament. As a regulation the GDPR is directly applicable in EU member states and it aims to remove red tape for businesses but also tighten privacy protections for online users.

It is vital for firms to begin preparing for the biggest data protection innovation in 20 years.

9. Capital Gains Tax

In advance of year end, funds should assess their exposure to capital gains taxes in investment jurisdictions, as well as the potential for withholding tax reclaims in certain EU countries (bearing in mind the time limits on such reclaims).

8. Companies (Accounting) Bill 2016 (the“Bill”) (Draft)

The draft Companies (Accounting) Bill 2016 contains changes to the filing obligations for unlimited companies .Certain Irish unlimited companies will have to publicly file their financial statements in the Company Registration Office (“CRO”).

We will only have a confirmation of the financial year to which the changes first apply once the Bill is enacted. The Bill is still currently part of the legislative process and at present there is no information available as to when it will be enacted.

7. AIFMD Insight

AIF Rulebook Amendment - Loan originating Qualifying Investor AIFs (“L-QIAIFs”)

The Central Bank of Ireland ("CBI") intends to amend the requirements for loan originating Qualifying Investor AIFs set out in the AIF Rulebook. L-QIAIFs will be permitted to invest in “debt and equity securities of entities or groups to which the loan originating Qualifying Investor AIF lends or which are held for treasury, cash management or hedging purposes”. L-QIAIFs have until now been prohibited from engaging in activities other than lending and directly related operations.

This change will come into effect from 3 January 2017.

ESMA issued advice on the extension of the AIFMD passport to 12 non-EU Jurisdictions

In 2016, the European Securities and Markets Authority (ESMA) issued advice to the European Commission in relation to the application of the Alternative Investment Fund Managers Directive (AIFMD) passport to non-EU Alternative Investment Fund Managers (AIFMs) and Alternative Investment Funds (AIFs) in twelve non-EU countries. ESMA suggests that the European Parliament, the Council and the Commission may wish to consider whether to wait until ESMA has delivered positive advice on a number of non-EU countries before triggering the legislative procedures which would extend the passport to certain non-EU jurisdictions. The timing of the extension of the passport to those jurisdictions which have received the positive advice is uncertain.

At present, the UK remains a member of the EU and UK AIFMs/AIFs continue to be able to use the EU passport as before. However, it is unclear what this will mean for the UK on Brexit.

6. Irish Property

Irish domiciled funds and securitisation vehicles holding assets that derive their value from Irish property may be affected by recent tax changes. An impact assessment should be carried out to understand the implications for investors.

5. CP86 and Central Bank of Ireland Themed Inspections

The CP86 Final Consultation from the Central Bank of Ireland (“CBI”) is awaited. Boards will need to review service – level agreements, contractual agreements and internal practices and procedures to ensure that regulatory compliance and risk is properly controlled. Compliance responsibilities need to be understood across the firm. The CBI issued a letter to fund boards and fund service providers on Directors’ time commitments highlighting matters to take into account when considering their capacity in undertaking their roles.

We expect the Markets Supervision Directorate of the CBI to shortly publish its programme of themed-inspections for 2017. The inspections will reflect some of the CBI’s supervisory priorities for 2017.The planned themed-inspections supplement the day-to-day supervisory activities of the CBI. We would accept to see the areas of Corporate Governance, Outsourcing, IT Risk and Conduct of Business make this list. Deloitte would encourage firms to begin considering and reviewing these areas to be ahead of the curve for the new year.
 

4. Anti-Money Laundering and Counter the Financing of Terrorism

A) 4th Anti-Money Laundering Directive (“the Directive”)
The aim of the Directive is to remove ambiguities and assist in achieving standardised Anti-Money Laundering and Counter Terrorism Financing across EU Member States. It also aims to counteract terrorist financing through improved adherence to the Directive’s obligations. The Directive is required to become law in EU member states in June 2017.The changes proposed are likely to increase the level of due diligence required to be carried out by fund entities on transfers from high risk countries, and increase the level of safeguards and required controls to be applied in performing due diligence.

B) Beneficial Ownership Register
IMMEDIATE IMPACT : Requirement to keep and maintain a beneficial ownership register since 15 November 2016.
For more information on the requirements involved please visit our website page: 12 Days of Christmas Legal, Regulatory and Tax updates.

3. The Securities Financing Transactions Regulation (SFTR)

UCITS and AIFs will have to disclose the use they make of securities financing transactions and total return swaps in their annual and semi-annual accounts for UCITS funds and annual accounts for AIFs in the next annual or half-yearly report published after 13 January 2017 which may relate to a reporting period beginning before that date. Section A of the Annex to SFTR sets out the data which must be reported.

ESMA may, but does not have to, issue some guidance on the disclosure requirements. ESMA has confirmed that it will monitor the developments in the market as well as the quality of the reporting data and it will then make a decision whether to issue any technical guidance.

2: Common Reporting Standards

Under the Common Reporting Standard, reporting financial institutions in early adopter countries are required to have completed due diligence procedures for identifying high-value pre-existing individual accounts by 31 December 2016.

1: Country by Country Reporting

Fund promoters should consider whether their Irish domiciled funds fall within the remit of Country by Country reporting and if so, the required notifications should be made to Revenue in advance of the fund’s accounting year end (i.e. before 31 December 2016 for affected entities with a 31 December 2016 accounting year end).