In December 2009, the Committee of European Securities Regulators (CESR) issued its technical advice to the EU Commission on level 2 measures relating to mergers of UCITS, master-feeder UCITS structures and cross-border notification of UCITS. CESR also issued annexes setting out methodologies for the calculation of the synthetic risk and reward indicator and the ongoing charges figure in the key information document (KID) which is due to replace the simplified prospectus. The advice is issued in response to the third part of the EU Commission's request for advice on implementing measures for the UCITS IV Directive.

Anticipation of developments in the area of investment funds such as UCITS IV and the Alternative Investment Fund Managers Directive (AIFMD) have triggered an increased trend towards the re-domiciliation of funds to well regulated jurisdictions. The mechanics of how a company could relocate into Ireland until recently involved the incorporation of a new fund company in Ireland and the transfer of assets between the existing fund and a new Irish fund. The tax implications of such transfers and the possible repercussions in terms of distribution networks and transfer agency issues all needed to be taken into account.

The Companies (Miscellaneous Provisions) Act 2009 (the Act) was passed into law on 18 December 2009. Section 3(j) & 5 of the Act provide a framework for streamlining the processes whereby the re-domiciliation of fund companies into and out of Ireland can be dealt with in a more efficient manner. These sections of the Act are not yet in operation and will be commenced by a separate commencement order. Section 3(j) of the Act provides a mechanism for companies to re-register in Ireland by making a single filing in the Companies Registration Office. The migrating company must also make an application to the Financial Regulator for authorisation as a UCITS or non-UCITS, as applicable, in tandem with the application to the CRO. The application to the CRO must also be accompanied by the relevant fees and confirmation by way of statutory declaration that the migrating company has applied to the Financial Regulator for authorisation to carry on business as an investment company under the applicable Irish legislation.

The internal company consents to the re-domiciliation can be dealt with at one meeting of the shareholders of the migrating company held in the jurisdiction of origin.

Once the filing of the application has been made, the CRO must be satisfied that all the requirements of the Companies Acts have been complied with before issuing a certificate of registration to the migrating company. The Financial Regulator will then issue the CRO with a notice of its intention to authorise the migrating company and at that stage the CRO will be in a position to issue a certificate of registration. Once this is complete the Financial Regulator can then issue the company with authorisation to carry on the business of an investment company. It is envisaged that the CRO and the Financial Regulator will work closely to ensure the re-registration (at the CRO) and the authorisation (at the Financial Regulator) will happen simultaneously. The migrating company must then comply with all the laws of its original jurisdiction of domicile to de-register in that domicile and notify the Registrar and the Financial Regulator within three days of its de-registration in the relevant jurisdiction.

The simplified process of re-registration introduced by the Act is a very welcome development for the Irish funds industry and Ireland should be in a good position to take advantage of fund relocations with the "no nonsense" approach to re-registration of fund companies available under this legislation.

The provisions of the Finance Bill 2010 (the Finance Bill) have introduced specific new measures which should strengthen Ireland's position as an investment fund domicile in the international funds industry.

Under the UCITS IV Directive, a UCITS management company established in one EU member state will be permitted to passport its services, which will enable it to manage a UCITS fund domiciled in another member state. In advance of the introduction of the UCITS IV Directive, the Finance Bill has clarified that a UCITS formed under the law of a member state other than Ireland will not be liable to tax in Ireland by reason only of having a management company that is authorised under Irish law.

The Bill also provides for an exemption from stamp duty where an Irish fund, in exchange for assets transferred, issues units directly to a foreign fund, rather than to the foreign fund's unit holders. This significant change will facilitate the master/feeder structures envisaged under UCITS IV.

A further range of competitiveness measures were also announced, including the following:-

• provisions to develop and facilitate Islamic finance in Ireland
  
  
• a number of additional double taxation agreements, and
  
  
• the removal of the requirement for non Irish resident investors to complete a non resident tax declaration to prevent the application of Irish withholding taxes on the making of distributions and redemptions from Irish funds.

UCITS Notice 10.4 allows a scheme to reduce its risk exposure to an OTC derivative counterparty, if the counterparty provides the scheme with permitted collateral. The Financial Regulator has now issued a policy note extending the list of permitted collateral to include equity securities traded on stock exchanges in the EEA, Switzerland, Canada, Japan, the United States, Jersey, Guernsey, the Isle of Man, Australia or New Zealand. This extension is subject to an "add-on" such that the market value of any such equity share collateral represents 120% of the related counterparty risk exposure.

The long awaited Criminal Justice (Money Laundering and Terrorist Financing) Bill 2009 (the "Bill") is expected to be passed in the Dáil by the end of April 2010. Regulated firms should now be taking the opportunity to make sure that their anti-money laundering practices are in line with the new legislative requirements.

Irish collective investment schemes are permitted to establish separate classes of shares within a scheme or sub-fund, provided that the creation of such structures do not prejudice one set of investors over another. As an exception to the general principle that the capital gains/losses and income arising from a sub-fund's pool of assets must accrue equally to each shareholder in that sub-fund, the Financial Regulator has previously allowed currency hedging at a share class level whereby the costs/benefits of the hedge transaction are allocated to the particular share class, and not the pool of assets as a whole.

The Regulator has now broadened its rules to allow for:

• Interest rate hedging, provided it is in accordance with the requirements set out in the Financial Regulator's Guidance Note 3/03.
  
  
• The use of financial derivative Instruments (FDIs) at share class level for currency hedging, interest rate hedging, different distribution policies, different fee structures, different levels of participation in the performance of the underlying portfolio and different levels of capital protection at share class level.

This is a very positive development for fund managers who will now be able to pursue the economic advantages and increased flexibility provided by such structures.

April 2010.

For further information please contact Sarah Lyons.