Implications for Investment Funds and MiFID Firms
The Investor Money Regulations (SI No. 105 of 2015) (the IMR) were published on 31 March 2015 following a lengthy consultation period with industry which began in 2013. The IMR apply to fund service providers (FSPs) including administrators, depositaries, UCITS Management Companies, Alternative Investment Fund Managers (AIFMs) and Alternative Investment Fund (AIF) Management Companies.
The IMR, together with the Client Asset Regulations (SI No. 104 of 2015) (the CAR), which apply to MiFID authorised investment firms, replace the Client Asset Requirements which were issued by the Central Bank in November 2007. The Central Bank has issued detailed guidance in relation to both the IMR and the CAR to coincide with the publication of the IMR and the CAR. The guidance documents are designed to be read in conjunction with the IMR or the CAR as appropriate.
Breaches of the IMR or the CAR can attract various penalties, including sanctions under the Central Bank’s administrative sanctions procedures.
The IMR bring collection accounts (i.e. bank accounts which are used by FSPs to receive subscription monies being paid into a fund and remit redemption monies being paid out of a fund) within their scope. Collection accounts are not subject to the existing client asset requirements. FSPs will need to review their use of collection accounts in light of the extensive requirements introduced by the IMR.
Where the collection account is an asset of the fund the IMR will not apply. A collection account opened in the name of a fund will be deemed to be an asset of the fund. Therefore, an account which is in the name of the fund will fall outside of the definition of collection account for the purposes of the IMR.
Where the collection account is deemed to be an asset of the fund it will be subject to the safekeeping regime applicable to the fund. However, the net asset value of the fund should not be affected by the inclusion of the collection account as all assets held in a collection account will have a corresponding and equal liability. For example, subscription monies held in a collection account will be netted off against the liability for shares due to be issued to the subscribing investor.
Currently, some FSPs use aggregated collection accounts opened in the name of the FSP to hold monies relating to multiple investment funds for efficiency reasons and to afford themselves a grace period within which monies received can be allocated to the correct fund. These FSPs will need to consider the implications of the IMR on their current operating model.
The IMR are set out under the following six headings which the Central Bank regards as the six core principles of an investor money regime:
The CAR are potentially applicable to the following entities, depending on the scope of their authorisation and whether they hold client assets:
The CAR are set out under the same six headings as are used in the IMR and the requirements as described in relation to the IMR above are broadly similar to those introduced by the CAR. However, the CAR have an additional set of requirements which fall under the following heading:
Client Disclosure and Client Consent: An investment firm must provide information to its clients on how and where that client's assets are being held, and the resulting risks, in a manner which is clear and easily understood.
Investment firms must also provide their retail clients with a Client Assets Key Information Document (the CAKID). The CAKID must contain certain prescribed information and disclose the circumstances in which the CAR will and will not apply. There is no prescribed format or length for the CAKID contained in the CAR or the guidance document.
The CAR will come into effect on 1 October 2015 and the IMR on 1 April 2016. Affected entities will need to determine the actions needed in order to comply with the IMR and the CAR and make such contractual and operational changes as are necessary prior to the relevant implementation date.