IRELAND: Central Bank publishes new edition of AIFMD Q and A

Thursday July 16 2015

On 15 July 2015, the Central Bank published a fourteenth edition of the AIFMD Q&A.

New questions include ID 1094 concerning Irish authorised AIFs seeking to acquire shares through the Shanghai-Hong Kong Stock Connect, and ID1095 concerning investments in unregulated funds.

ID 1094: What are the regulatory considerations around Irish authorised AIF seeking to acquire Chinese shares through the Shanghai-Hong Kong Stock Connect infrastructure?

Answer: Before an Irish authorised AIF acquires Chinese shares through the Shanghai-Hong Kong Stock-Connect infrastructure for the first time, its depositaries would need to satisfy itself that the manner in which the shares were to be held allowed that depositary to meet its legal obligation under the AIFM Regulations, the AIFMD Level 2 Regulation and any conditions imposed by the Central Bank.

If an Irish authorised AIF proposes to acquire Chinese shares through Stock Connect, in order to meet the legal obligations on a depositary, the depositary of the investment fund, or an entity within its custodial network (i.e. a sub-custodian), must ensure that it retains control over the shares at all times. The relevant legislation does not provide for the Central Bank to recognise eligible clearing structures. The obligation rests on the depositaries in the first instance.

However, from the information provided by the relevant authorities, it is evident to the Central Bank that the legal obligations of a depositary cannot be met without at least being a participant in Hong Kong Securities Clearing Company Limited (HKSCC). It is also clear that in all cases, at the present time, arrangements where the broker of the investment fund is a participant of HKSCC but not an entity within the depositary’s custodial network, will not satisfy the provisions of the relevant legislation.

There are a number of options in terms of level of participation within HKSCC, namely General Clearing Participant, Direct Clearing Participant or Custodian Participant. The depositary or a member of its custodial network must identify one or more levels of participation, if any, which would be in line with its legal obligations as a depositary.

It is incumbent on the depositary to review and keep under review the Stock Connect infrastructure arrangements to ensure that its legal obligations can be met.

ID 1095: I am a qualifying investor alternative investment fund (QIAIF) availing of the flexibility to invest more than 50% of net assets in an unregulated investment fund (ref. paragraph 7 of Chapter 2, Part II, Section 2 of the AIF Rulebook). What other requirements of that section apply to me?

Answer: A QIAIF that avails of this flexibility must also comply with the requirement to attach the periodic reports of the underlying investment fund to its own periodic reports (ref. paragraphs 6 and 9 of that Chapter 2, Part II, Section 2 of the AIF Rulebook).

Click on the above link for further details.