I move: "That the Bill be now read a Second Time."
The Government's IFSC strategy and the Action Plan for Jobs call for the introduction of a new legal framework for corporate funds. The Irish Collective Asset-management Vehicles Bill is the Government's response to that call. I believe that this Bill will allow Ireland better compete for investment with other funds domiciled on an equal footing and will maintain Ireland's well-deserved reputation as a safe place in which to do business.
This Bill introduces a new corporate vehicle - an Irish collective asset-management vehicle, ICAV. The ICAV will provide a new platform for managers of collective investment schemes. It will complement the investment companies, investment limited partnerships, common contractual funds and unit trusts structures that are already provided for in Irish law. ICAVs will resemble in many ways companies established under company law but they will not be part of company law. General company law provisions are often irrelevant or inappropriate to investment funds and, increasingly, EU company regulations are creating unintended consequences and unnecessary expense for funds.
The Government and the funds industry invest significant resources in promoting Ireland to international investors as the very best place to domicile funds. With the ICAV, Ireland will be able to offer fund managers a more complete range of corporate structures to meet their various needs. The ICAV is the first really significant development on this front since the introduction of the common contractual fund ten years ago.
Luxembourg has had a variable capital corporate structure specifically designed for undertakings for collective investment in transferable securities, UCITS, and alternative investment funds, AIFs, for many years. Indeed, such structures can also be found in Italy, Spain, France, Germany, the United Kingdom and the United States. What we are doing with the ICAV is not novel or untested. Rather we are providing those whose job it is to secure investment and jobs for Ireland with the best tools to keep up with our competitors.
The Irish funds industry is a key part of the internationally traded financial services sector - often referred to as the IFSC. Some 5,671 investment funds are authorised and regulated by the Central Bank of Ireland while a further 6,962 are administered in Ireland. This amounts to some €1,563 billion in authorised - Irish domiciled - funds and some €2,956 billion in funds under administration. Some 13,000 staff are employed directly and indirectly in both the IFSC in Dublin and in a number of locations throughout the country - it is a myth that it is a Dublin-based sector. Some 2,500 of these staff provide legal and accounting services and the industry generates significant direct and indirect Exchequer receipts annually.
Throughout the difficulties of recent years, the funds industry has continued to perform well and generate jobs, driving growth in sustainable employment throughout the country. Lest we forget, as I stated already, the funds industry in Ireland is not only based in the docklands of Dublin, but stretches out to provide high quality jobs throughout the country. One need only consider the recent significant expansion in investment in local communities across the country by companies such as Northern Trust and State Street. These and similar operators conduct their activities in locations as diverse as Limerick, Cork, Drogheda, Naas and Wexford.
Why do we need to do more if we already have the right formula to make Ireland the world's leading alternative investment fund domicile, including highly educated and motivated staff, a conducive business environment and a regulatory regime which is responsive to the needs of industry while at all times ensuring the protection of the interests of investors? Put simply, we need to do more because our competitors do not stop developing new structures and products, and if we are to continue to compete our innovation cannot stop either.
The Irish funds regime does not stand alone. This is a global industry with the US authorities and the EU playing lead roles. We are also seeing moves to create a south-east Asian collective investment product to rival European and American funds. Much of Ireland's effort goes into shaping the approach that Europe takes collectively to develop the industry through the UCITS directives and the Alternative Investment Fund Managers Directive. We are currently intensively involved in negotiations on the money market fund regulation. However, the precise legal structures upon which these funds sit remains a matter for individual member states to determine, and this is where the ICAV comes in.
Under the Bill ICAV will operate as regulated collective investment schemes, in other words, as undertakings for collective investment in transferable securities or as alternative investment funds. Collective investment schemes involve a vehicle for pooling the investments of investors in order to obtain professional management for their pooled assets.
The purpose of a fund is to invest the pooled assets for the primary benefit of the investors. In the case of UCITS, these range from ordinary consumers saving for their retirements all the way to hedge fund managers in New York and London. From Ireland's perspective, they all have one thing in common. If their funds are invested in an Irish domiciled UCITS or alternative investment fund, we have a duty to ensure the funds are administered and supervised to the very highest international standards. That remains the overriding objective of our policy on funds. The ICAV Bill is part of that strategy. Its purpose is to enhance the attractiveness of the Irish funds offering while maintaining the highest regulatory standards at all times.
Cost is one of the important factors in any decision to domicile a fund in Ireland and a key motivating factor in introducing the Bill is to create a cost-effective product which can compete on an equal footing with similar corporate structures for investment funds in other jurisdictions. The advantage to certain investors of the ICAV is that it will stand apart from the huge body of company law rules concerning SMEs or multinational industrial conglomerates which seek to address the myriad forms of risk arising in normal commercial environments. The ICAV structure keeps the investors in UCITS and AIFs far more up to date with the success or otherwise of the enterprise through daily net asset valuations, and they are assured that the investment policies and corporate governance of the scheme are subject to the independent control of third party depositories who are also closely regulated by the Central Bank.
Another feature of the ICAV which will be attractive to investors is the potential for it to be tax transparent in certain jurisdictions. This means, for example, that the tax authorities in the United States will be able to tax US investors directly on returns earned from an ICAV-based fund without taxing the fund directly. For those investors, that has the advantage of bringing forward the opportunity to meet their ultimate tax liability and so avoid double taxation as well as interest payments which would otherwise be due. The advantage should be seen in light of Ireland having already signed an intergovernmental agreement with the United States to assist in the implementation of the US Foreign Account Tax Compliance Act, FATCA, which will ensure reporting on US investors to the US tax authorities by Irish fund managers of all relevant information.
I will outline to the House the key features of the Bill. The first Part deals with preliminary matters and contains definitions used throughout the Bill, as well as giving the power to make regulations in specified circumstances. The power of the Central Bank to make regulations and give directions on ICAVs and other regulated financial service providers is set out in the Central Bank (Supervision and Enforcement) Act 2013. The ICAV will be a corporate entity, with limited liability for investors, formed by two or more persons and with a registered office in the State.
The creation of a functioning ICAV involves two stages, as set out in Part 2, namely, registration and authorisation. Regarding the first stage, the Central Bank of Ireland will maintain a register of ICAVs and will discharge functions similar to those undertaken by the Companies Registration Office, CRO, in relation to companies. The provisions largely reflect the principles established for companies in company law.
The second stage is authorisation. From the introduction of the UCITS regime in 1989, the Central Bank was appointed as regulator under the relevant UCITS regulations. The regulations provide a mechanism for the bank to authorise the investment funds, and contain all the necessary rules and regulations that have to be complied with by authorised funds. The most recent iteration of the regulations was made in 2011. For convenience, this is referred to as the "UCITS regime".
Separate from this regime, many member states, including Ireland, developed a parallel regime for collective investment funds. For convenience, these are referred to as "Non-UCITS". In recent years, the introduction of the alternative investment fund managers directive has brought a harmonised European approach to the regulation of certain aspects of these investments, relating in particular to their management, but has stopped short of requiring a full authorisation process. While the transposition of UCITS regulations contains a discrete authorisation process, it is necessary to provide a similar mechanism for the authorisation of ICAVs that propose to operate as alternative investment funds, and chapter 2 of Part 2 contains the necessary provisions.
In accordance with settled industry norms supported by the existing prudential regulatory framework, ICAVs operating as AIFs will be capable of operating separate sub-funds whose liability will be segregated from the other sub-funds. Where an ICAV operates as an umbrella fund in this fashion, the enhanced governance rules set out in sections 36 and 37 will apply.
Part 3 deals with the shares of the ICAV and reflects provisions in place for funds which are incorporated under company law. As with Part XIII of the Companies Act 1990 investment company, the ICAV will be able to take investments and redeem investments, resulting in a fluid capital structure. The remainder of the provisions in this Part concern the maintenance of the register of members, and these also reflect established policy as set out in company law.
Part 4 concerns the appointment, removal and conduct of directors and to a large extent mirrors provisions in companies legislation. The provisions help ensure the integrity of the ICAV and include a prohibition on the making of directors' loans. ICAVs can only operate as regulated collective investments schemes and are subject to prudential regulatory requirements which far exceed those placed on trading companies. The directors of ICAVs will face not only the same rules on restriction, disqualification and prosecution for misconduct but are also subject to the exacting rules on fitness and probity operated by the Central Bank of Ireland and its administrative sanctions regime, which can bring swift and tough justice for any misuse or abuse of their privileged positions.
The ICAV is ultimately a financial services vehicle and creates legal obligations, a breach of which may give rise to enforcement action under numerous pieces of funds legislation, including UCITS, AIFMD and Prospectus, among others. Regardless of how the ICAV is structured, financial services obligations will continue to be enforced by the Central Bank. In particular, the Central Bank will remain responsible for all the enforcement relating to the actions of the fund itself and the fund's participants and management. Moreover, in addition to the capacity to seek the disqualification of a director, directors will be subject to the bank's fitness and probity regime.
The draft ICAV Bill contains 64 sections that give rise to an offence. Due to the link with the Companies Acts, enforcement measures in relation to a large number of offences would fall within the remit of the Office of the Director of Corporate Enforcement rather than the bank. Such offences contained within the Bill deal with breaches of standard corporate governance requirements such as the retention of meeting minutes, failure to notify the appointment of a liquidator or failure to furnish information to a liquidator. These offences are mainly relatively minor in nature. Some, however, are more substantial, such as seeking the disqualification of certain persons acting as officers or directors.
The Bill also cross-applies to directors of ICAVs the restriction and disqualification regime that applies in the case of company directors. In those circumstances, persons appointed as directors of ICAVs will have an appreciation and understanding of the regime with which they have to comply and how actions can be taken against them.
Part 5 concerns the meetings, including the annual general and extraordinary general meetings, of the ICAV. Of particular significance in that regard is the capacity of the board to dispense with the holding of an AGM. Members holding not less than 10% of the shares of the ICAV may, in any case, cause the convening of an AGM. That is an appropriate measure for an entity which is already subject to strict prudential oversight by a national financial regulator.
The approach adopted in Part 6 to keeping financial information and to the preparation of financial statements and their audit is not to replicate the more detailed accounting requirements contained in the Companies Act but to reflect the applicable requirements in both directives to which I referred. That maintains the necessity to comply with specified accounting standards and, at a minimum, to give certain specified information.
Part 7 concerns the conversion of an existing collective scheme incorporated as an investment company to an ICAV. This is necessary as not only do we expect promoters of new investment funds to adopt the ICAV as the bespoke solution to their requirements, but we expect that many existing fund managers will also want to avail of the advantages provided by the ICAV.
Part 8 sets out provisions relating to the appointment of a receiver, the winding up and the striking from and, if appropriate, the restoration to the register of an ICAV. In each case those rules which apply to an investment company will cross-apply to an ICAV with the necessary modifications. I am in the process of final review of the provisions to determine whether it might be better or desirable to set out slightly revised provisions in relation to the striking off and restoration of ICAVs from the register maintained by the Central Bank. I would appreciate the views of Members on the matter and, if necessary, I will bring forward some amendments in the area on Committee Stage.
Part 9 contains miscellaneous provisions, including the penalties for offences under the Bill, provisions for the inward migration of foreign fund structures to become ICAVs and vice versa, and the division of enforcement responsibilities between the Central Bank and the Office of the Director of Corporate Enforcement.
It must be acknowledged that the ICAV Bill is largely a technical one. While it may not engage the interest of many beyond this House or beyond those in financial and legal circles, in considering its merits I ask that we all bear in mind that it is a measure that will have real and lasting meaning for the economy, the taxpayer and, most important, for those young and not so young people who will reap the benefits of new investment funds domiciling in Ireland as a direct result of what we are doing today. The new ICAV structure will serve to maintain the strength of Ireland as a funds domicile and increase direct and indirect employment in the funds sector.
I hope the outline of the legislation I have provided gives the background and context underlining the benefits which will arise from the Bill. I very much look forward to a constructive debate and to hearing the contributions of Members working collectively to ensure we will put in place legislation that will protect and enhance competitiveness and attractiveness to investors as we set about looking at how we can continue to improve and advance the financial services sector.