IRELAND: Central Bank Update on Irish and EU Financial Services Developments

Wednesday December 10 2014

Director of Markets Supervision at the Central Bank of Ireland, Gareth Murphy spoke at the 2nd Annual IFIA UK Symposium regarding some of the CBI’s policy initiatives which are pertinent to the funds industry, along with the main European policy developments.

The speech addressed the following consultations which are currently on-going in the funds industry:

• UCITS collateral management
• Fund manager board oversight of delegates
• Loan Origination by Alternative Investment Funds (AIF)

UCITS collateral management
The consultation is in place due to a change to ESMA’s Guidelines on ETFs and Other UCITS which enables all UCITS funds to use reverse repo in order to invest their portfolios in government securities. The aim of this consultation is to clarify to fund managers what the CBI’s supervisors will expect to see when reviewing fund managers’ collateral management processes.

Fund manager board oversight of delegates
This consultation seeks to ensure that the boards of fund managers are conducting appropriate oversight of delegates. The implementation of UCITS and AIFMD has resulted in greater regulatory requirements. This has subsequently increased fund governance.

The greater regulatory impact of UCITS and AIFMD has resulted in an increased of regulatory and legal risk.

There have been various reactions to this consultation, including the fact that the demand for good funds governance has compromised good corporate governance.

Loan Origination by Alternative Investment Funds (AIF)
CBI has launched a regime for AIFs to originate loans.

The speech also addressed the following issues:

• Current European regulatory agenda for the Funds Industry
• UCITS V
• Depository Asset Segregation under AIFMD
• AIFMD third-country passport

Current European regulatory agenda for the Funds Industry
This includes Money Market Funds (MMFs). MMFs are not properly dealt with in the EU MMF regulation. This constitutes an issue of external support which poses a risk of moral hazard. The suggested solution is a ban on this external support.

UCITS V
It was concluded that a small minority of EU countries require UCITS to have non-affiliated depositories and investment managers. The majority of EU countries would prefer the implementation of safeguards to ensure party independence.

Depository Asset Segregation under AIFMD
This issue has been under consideration. It has been suggested that more information is required in order to investigate the associated costs with segregation.

AIFMD third-country passport
This constitutes another important funds issue which considers the possibility of extending AIFM passport to third countries. There are various issues associated with this, including, cross-border supervision and competitive distortion.

This speech also addresses the broader regulatory agenda within the new European Parliament. This raises issues including cost-effectiveness; financial stability, market integrity; consistency and investor protection.

Please click on the above link for further details.