Brexit Update: Additional Clarity Received From The Central Bank Of Ireland

Author:Mr Donnacha O'Connor and Cillian Bredin
Profession:Dillon Eustace
 
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Following on from our recent publication, the Central Bank of Ireland (the "Central Bank") has now provided additional clarity on a number of key Brexit related matters that will be of relevance to participants in the Irish funds industry affected by Brexit.

UCITS and RIAIF investment restrictions

The Central Bank has, by way of publication of a 'notice of intention', confirmed its approach to certain of the UCITS and RIAIF investment restrictions which would be impacted in the event of a hard Brexit.

UCITS and RIAIFs investment in UK investment funds Regulation 68(1)(e) of Ireland's European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011, as amended ("UCITS Regulations"), provides that UCITS may invest in AIFs provided, inter alia, that the AIFs are authorised under laws which provide that they "are subject to supervision considered by the Central Bank to be equivalent to that laid down in Community law".

Chapter 1 of the Central Bank's AIF Rulebook (the "AIF Rulebook") permits Retail Investor AIFs ("RIAIFs") to invest in regulated investment funds, defined as an investment fund which is either a 'category 1' investment fund or a 'category 2' investment fund.

In the event of a hard Brexit the eligibility of UK investment funds would not fit squarely within their rules.

However, pending its consideration of the matter in full, the Central Bank has confirmed that it will not treat UK investment funds as ineligible investments for Irish UCITS and RIAIFs notwithstanding the rules set down in the UCITS Regulations and the AIF Rulebook.

However, the Central Bank has confirmed that Irish UCITS will need to ensure that investment in UK investment funds respects the UCITS investment restriction which sets an aggregate limit of 30% for investment in AIFs.

Counterparty exposure rules for UCITS and RIAIFs Regulation 8(3) of the UCITS Regulations prohibits UCITS from entering into an OTC derivative unless the derivative counterparty falls within certain categories. Chapter 1 of the AIF Rulebook applies a similar prohibition to RIAIFs. Again, the eligibility of UK authorised counterparties has been an issue as non-EEA investment firms are not included in those categories.

However, the Central Bank has confirmed that, pending its consideration of the matter in full...

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