This is a technical proofing amendment to correct an error in the publication of the Bill as passed by Dáil Éireann.
Irish Collective Asset-management Vehicles Bill 2014: Committee and Remaining Stages
I move amendment No. 2:
In page 14, line 15, after “property” to insert “, other than residential or commercial real estate,”.
Senator Sean D. Barrett is having a chat about Aer Lingus with Mr. Willie Walsh and has asked me to move the amendment. "Having a chat" may be the wrong phrase to use, but he has asked me to express his appreciation for the number of amendments the Minister of State has accepted, many of which he suggested on Second Stage. He was very complimentary to the Minister of State. The object of this amendment is to keep "hot" money which caused property bubbles in the past out of the property market. The Senator is very anxious to ensure the Minister of State will include the particular term, “other than residential or commercial real estate". The amendment speaks for itself and I recommend it.
I can speak to amendments Nos. 2 and 3 together. Have they been grouped?
Although they have not been grouped, if there is no objection, we can discuss them together. Is that agreed? Agreed.
Shall I speak to amendment No. 3 now?
Amendment No. 3 aims to ensure "no guarantee of the Government of Ireland or the Central Bank of Ireland shall apply to any ICAV". Senator Sean D. Barrett is anxious is to ensure there will no be gambling and believes amendment No. 3 would achieve this. He thinks that, without the amendment, there would be a temptation to gamble on these funds, rather than otherwise.
I appreciate Senator Sean D. Barrett's words and have endeavoured to take on board as many of his very constructive comments on Second Stage as possible. Unfortunately, I am not in a position to accept the amendments he has tabled and I will explain why.
As I previously mentioned, ICAVs will have to be authorised as undertakings for collective investment in transferable securities, UCITS, or as alternative investment funds, AIFs. Under the UCITS regulation, authorised UCITS cannot invest in real property for investment purposes; therefore, a UCITS ICAV will not be able to invest in real property for investment purposes either. It would be able to acquire moveable or immovable property which would be essential for the direct pursuit of its business, for example, office space. On the other hand, Irish authorised AIFs which are structured as investment companies, unit trusts, common contractual funds or investment limited partnerships are not subject to a similar prohibition and I do not propose to treat ICAVs any differently. Accordingly, I am not prepared to accept amendment No. 2. I am keeping the status quo. Neither UCITS nor UCITS ICAVs can invest in property, whereas an AIF could and it will not be treated differently from an ICAV.
While I appreciate the reasoning behind Senator Sean D. Barrett's proposal in amendment No. 3, I am not prepared to accept it. In the case of the proposed subsection (5), in general investors in funds are aware that their investments may increase or decrease in value and do not expect to be provided with a guarantee.
As regards the Central Bank, I draw the Senator's attention to section 25 of the Bill which provides that "The authorisation by the Bank of an ICAV or the approval of a depositary or management company shall not constitute a warranty by the Bank as to the performance of the ICAV ... and the Bank shall not be liable for the performance or default of an ICAV".
As far as the Central Bank is concerned, I draw the Senator's attention to section 25 of the Bill, which provides that the authorisation by the Central Bank of an ICAV does not constitute a warranty by the bank as to the performance of an ICAV, and the bank shall not be liable for the performance or default of an ICAV.
I am satisfied that is the appropriate approach and mirrors the approach in respect of Part XIII investment companies in section 259 of the Companies Act 1990 which is replicated in section 1397 of the Companies Act 2014. Where possible, I am trying to mirror the provisions of the Companies Act. Therefore, I do not propose to accept the amendment.
Is the amendment being pressed?
Senator Sean D. Barrett would like me to withhold his amendment for Report Stage.
Is the Senator proposing to withdraw the amendment and resubmit it on Report Stage?
I ask the Acting Chairman to correct me if I am wrong, but I understood we were taking Committee and Report Stages together.
I do not know what Senator Sean D. Barrett is proposing to do on Report Stage.
Amendment No. 3 was tabled by Senator Sean D. Barrett and is in the same vain.
I withdraw amendment No. 3. Are we taking Report Stage today?
I understand we will have Committee Stage which will be followed by Report Stage.
The amendment cannot be re-entered for Report Stage. As we are taking Report Stage immediately after this Stage, there will be no time for the secretariat to deal with it.
Amendment No. 4 is in the name of Senator Sean D. Barrett. It has been ruled out of order as it involves a potential charge on the people.
Amendment No. 5 is in the name of Senator Sean D. Barrett.
I am sorry, but I would like to say-----
I move amendment No. 5:
In page 15, to delete lines 3 and 4 and substitute the following:
“(4) The Bank shall specify that the ICAV is compliant with the Capital Requirement Directive CRD IV/CRR published in the Official Journal of the European Commission on June 27, 2013.”.
The idea behind this amendment is to prevent a breakdown in the EU bank regulation. The amendment states that the bank shall specify that the ICAV is compliant with the capital requirement directive published in the Official Journal of the European Commission on 27 June. The concept is that this should be in the hands of Ireland rather than the European Union. Senator Sean D. Barrett is anxious to make sure this will happen.
I thank the Senator.
The capital requirements directive, CRD, is designed for banks whereas, as we know, ICAVs are investment funds. There is a fundamental difference between the way that banks and investment funds treat capital.
For banks, they receive deposits which deposit holders expect to be returned in full. Banks use the money deposited to make loans and other investments. Banks retain a certain amount of capital to act as a buffer against any losses they may incur from their lending and investment activities. In this way, banks should always be in a position to repay the money deposited with them to deposit holders.
Investment funds are quite different. Investors do not put their money on deposit in an investment fund. They invest and receive units in the investment fund in return. The investment fund takes the moneys invested with it and invests these in accordance with its investment objectives and policies. Investment funds do not guarantee that investors will receive back the same amount that they have invested.
It is also worth noting that the CRD is not applied to Irish authorised investment funds which are structured as investment companies, unit trusts, common contractual funds or investment limited partnerships. I am satisfied ICAVs should be treated in the same manner.
There is an exception to the foregoing where a UCITS is a self-managed investment company or where an AIF is internally managed. This is because they are not only investment funds but also management companies. They are subject to a minimum capital requirement of €300,000.
In the light of the foregoing, I consider the present arrangements to be appropriate and would not be prepared to impose on ICAVs the thresholds applicable under the capital requirements directive which are determined in a different context for a different class of vehicle engaged in a different sphere of activity.
I accept the Minister of State's view and I am sure Senator Sean D. Barrett will view it in the same way. As he has high confidence in the Minister of State's view, I accept his response.
Amendment No. 15 is consequential on amendment No. 6. Amendments Nos. 6 and 15 may be discussed together, by agreement. Is that agreed? Agreed.
These are two straightforward amendments. Amendment No. 6 provides that a director must disclose in his or her statement, required under section 10 for registration of an ICAV, if he or she is disqualified under the law of another country from acting as a director or secretary of an entity. The amendment effectively provides for the insertion of section 23 of the Companies Act 2014 into the ICAV Bill.
Amendment No. 15 is a technical amendment consequential to amendment No. 6. It modifies the text on company law disqualification of directors' rules to take account for the relevant statutory reference in relation to ICAVs.
In regard to ICAVs that are alternative investment funds, it will either have internal management within the ICAV or will have appointed external management. The Central Bank, through the authorisation process of the internal management, will be aware of the manager within the ICAV since it will be one and the same person. However, in the instance of external fund managers the bank will not automatically know who the manager is, and thus this amendment clarifies that all external managers will have to provide their full name and address to the Central Bank of Ireland upon application to the Central Bank of Ireland for authorisation as an ICAV.
All managers of non-UCIT funds will be authorised separately under the rules implementing the alternative investment fund managers directive.
Amendments Nos. 8 and 9 form a composite proposal and may be discussed together, by agreement. Is that agreed? Agreed.
Amendments Nos. 8 and 9 are minor drafting corrections referring to the word "that" and, therefore, I propose the two amendments.
Government amendment No. 9:
In page 22, line 9, to delete “that”.
Amendment No. 10 is also a minor drafting correction.
Amendment No. 11 seeks to make the rules in relation to the execution of documents consistent with the position under the Companies Act 2014 in respect of PLCs.
ICAVs may wish to authorise other individuals, perhaps such as the investment manager, to execute standard trading documents on behalf of the ICAVs. The original text of the Bill which limited signatories to the directors and the company secretary is out of line with how investment funds currently operate. This amendment brings the ICAV in line with company law.
I move amendment No. 12:
In page 43, to delete lines 17 to 19.
This amendment has to do with the names of directors being shown in all business letters. Will the Minister of State explain why we have special circumstances? I understood the directors' names should be shown on all business letters. I did not know there were exceptions. Perhaps there were exceptions in the past, but if there will now be, what special circumstances would mean directors' names would not have to appear?
I thank Senators Feargal Quinn and Sean D. Barrett for the amendment. The purpose of the legislation is to mirror, where appropriate, company law and differentiate where companies and ICAVs should be treated differently. This is an area where we believe the ICAVs should be treated exactly as a company is treated. Therefore, I am mirroring a provision that is already in company law. I am not creating a new scenario, it is a scenario that already exists under company law. I do not have a list of what would be viewed as exceptional circumstances or an exemption, but mirrors exactly the provisions of company law. Section 68 of the Bill reflects, as a reference point, section 151 of the Companies Act 2014 and, before that, section 196 of the Companies Act 1963. As Senators will be aware, such a dispensation is not mandatory. It is a flexibility given to the bank to deal with unusual circumstances with which it may be presented. On the basis that there is such a precedent in the Companies Acts and I am not creating a new procedure or new rule, I am satisfied in all these circumstances that it should be retained.
Senator Sean D. Barrett and I assumed the law did not make any exception and that this would be the first time it would make one. Senator Sean D. Barrett understandably felt that if we were going to be serious, we should not allow certain exceptions. If the Minister of State says it is a replica of what is in company law, that would be accepted.
Amendments Nos. 13 and 14 are related and may be discussed together.
Amendment No. 13 inserts a new provision into the ICAV Bill that stems from the introduction of section 78 into the Bill, being the provision governing fiduciary duties owned by a director. The section mirrors section 232 of the Companies Act 2014. The amendment obliges the director who acts in breach of his fiduciary duties to account to the ICAV for any gain he or she has made arising from the breach of duty or indemnify the ICAV for any loss arising from the breach.
Amendment No. 14 inserts a new provision that follows on from amendment No. 13 and mirrors section 233 of the Companies Act 2014. The amendment provides that an officer of an ICAV may have a defence to a claim of negligence or breach of duty on their part where they have acted honestly and reasonably.
This amendment amends section 85(2)(l)of the ICAV Bill which refers to section 863(2) of the Companies Act 2014. Section 863 of the Companies Act 2014 provides that details of disqualification orders, convictions or other such relevant occurrences must be supplied to the Company Registrations Office, CRO. This amendment makes it clear that where such an offence occurs in relation to an ICAV, that information must be sent to the Central Bank rather than to the CRO and that the information ought to be sent to the Bank in a form and manner they will specify.
Amendments Nos. 17 and 18 are related and may be discussed together.
Amendment No. 17 is a drafting amendment to use the point to "Act" rather than "part", which would be incorrect.
On amendment No. 18, from Senator Sean D. Barrett, section 87(1) provides that every ICAV must hold an annual general meeting. Section 87(4) provides that the directors may elect to dispense with such a meeting. The Senator's amendment proposes to remove the ability of the directors to dispense with AGMs. Experience with the operation of investment fund vehicles since the advent of the IFSC has been that such meetings are rarely attended by most investors. Arranging such AGMs involves expense that can be avoided by allowing the directors not to hold an AGM. It should, however, be noted that ICAVs will, under Central Bank rules, be required to obtain approval from shareholders if they intend to increase fees payable to their managers or to increase fees charged in relation to redemptions. Approval from shareholders will also be required by the Central Bank if an ICAV proposes to change investment objectives or make material changes to investment policies. The Central Bank rules currently apply to other types of investment fund vehicles. Additionally, as a safeguard, subsection (6) provides a means whereby a holder of not less than 10% of the voting rights or the auditor can requisition the holding of an AGM.
I considered this issue in detail on Committee Stage in the Dáil, insuring and giving extra provision to the auditor which was not the case in the originally published Bill in order that the auditor's voice could not be dispensed with. The directors can elect not to have it but either holders of not less than 10% of the voting rights, or the auditor, can requisition the AGM in addition to the other safeguards under Central Bank rules that I have outlined. Therefore, the balance of interests as set out is reasonable. I do not propose to accept the amendment.
How does this correspond with company law? Is it similar?
No, this is an area where we are not mirroring the Companies Act because an investment fund is not like a typical company. Our experience with the investor fund AGMs is that people often do not attend. There is data available to people involved in investment funds that is not necessarily available to people on a daily basis in relation to companies. However, there are already specific rules in the Central Bank that will apply in regard to any material change in investment objectives or managers' fees. Holders of 10% of the voting rights and-or the auditor can overrule the directors if they do not want to hold an AGM. However, it is not obligatory. I am trying to make this a competitive tool for Ireland. It is bringing us in line with the experiences of other similar products and tools in other jurisdictions. It also reflects the reality of what an investment fund is and how it is constituted and operated.
Amendment No. 19 provides for the protection of the priority of charges held by a migrating company seeking to register as an ICAV.
The purpose of the amendment is to safeguard the priority to which anybody may be entitled on foot of legal, equitable or such other principles that govern charges in the jurisdiction in which they were issued.
I move amendment No. 20:
In page 71, to delete lines 29 to 39.
The basis of this amendment is a concern that the Bill is offering a defence that could be akin to claiming one thought someone else such as the accountant was doing it and so on. It appears to give an out on that basis. It appears to give a defence in proceedings for existing offences to those who claim somebody else was doing the accounts and therefore, it was not their fault. I invite the Minister of State to correct me in this regard.
The effect of the amendment tabled by Senator Sean D. Barrett and moved by Senator Feargal Quinn would be to remove the defence afforded to directors of Irish collective asset-management vehicles, ICAVs, to employ suitably qualified people to ensure the accounting records of their ICAV are maintained in accordance with applicable requirements. This replicates the requirement in section 202 of the Companies Act 1990 and which is repeated in section 286(8) of the Companies Act 2014 and this is where the issue arises. I neither propose to nor am mandated to begin a discussion on the Companies Act, which obviously went through a significant period of passage in both Houses as recently as last year. I am mirroring the provisions that are appropriate and where I think the provisions do not apply to an ICAV, I am removing them or putting in place alternatives. I reiterate this is a provision in section 202 of the Companies Act 1990 and section 286(8) of the Companies Act 2014. I am following the existing precedent in the Companies Acts in this instance and do not, therefore, propose to accept the amendment.
On the basis of the Minister of State's explanation, the amendment is withdrawn.
I move amendment No. 21:
In page 74, between lines 17 and 18, to insert the following:
“(12) In this section “generally accepted accounting practices in the State” means professional standards in the accountancy profession as determined by the Irish Auditing and Accounting Supervisory Authority.”.
The objective of the amendment is to control the auditors. It is logical and understandable and I seek an explanation from the Minister of State.
I thank the Senator and appreciate the thrust of the amendment tabled by Senator Sean D. Barrett which is to provide that "generally accepted accounting practices in the State" means professional standards in the accountancy profession as determined by the Irish Auditing and Accounting Supervisory Authority. However, the use of the term "generally accepted accounting practice" is deliberately wide and is neither accidental nor an anomaly. Its purpose is both to cover applicable accounting and auditing standards and any other practices, such as guidance, that bear on the preparation of accounts in this jurisdiction. As a result of amendments I made during the passage of the Bill through the Dáil, I introduced a specific requirement that the accounts must give a true and fair view, which is a belt-and-braces approach, in a number of places in the Bill, including section 114(2). Moreover, the auditor, in accordance with section 118(2)(a), is required to confirm that the annual accounts give a true and fair view. I am satisfied this has strengthened the requirements in this part of the Bill. I also point out that in accordance with section 48 of the Central Bank (Supervision and Enforcement) Act 2013, the Central Bank can impose additional requirements to regulate accounting, auditing and other reporting arrangements if this is considered desirable or necessary. In these circumstances, I do not deem it necessary to accept the Senator's amendment.
Amendment No. 22 is a drafting amendment to replace the word "authorisation" with the more correct term, which is "approval".
Amendment No. 23 is a drafting amendment to correct the specific modifications to cater for the winding up of the ICAV.
Amendments Nos. 24 and 25 are related technical amendments and may be discussed together, by agreement. Is that agreed? Agreed.
Amendment No. 24 is a drafting amendment to correct a punctuation error and amendment No. 25 also is a drafting amendment to correct an error in section 171. Inspectors, not directors, furnish reports and that is the amendment.
I congratulate whoever noticed the first error. I examined it and could not discern any difference until I saw the inclusion of the inverted commas.
As the Senator has noted, the amendment literally concerns the inverted commas around the word "agreement".
Well spotted. I thank the Minister of State.
Amendment No. 26 modifies the enforcement provision in respect of sections 876, 877 and 878 of the Companies Act 2014 in order that the Central Bank, as well as the Office of the Director of Corporate Enforcement, will now be able to take summary proceedings should these offences occur. Section 876 of the Companies Act concerns the offence of providing false information. Section 877 concerns the offence of destroying documents, while section 878 concerns the fraudulent parting with documents. These sections are cross-applied from the Companies Act 2014 to the Irish Collective Asset-management Vehicles Bill by virtue of this section. The amendment reflects the reality that, by virtue of the Central Bank's role as the registration authority for ICAVs, it may be best placed to prosecute for such offences.
Amendment No. 27 sets out the mechanism for the registration of documents concerning an ICAV and how these documents may then be inspected.
Amendment No. 28 specifically modifies a number of the USITS regulations in order that they are given effect within the context of the ICAV. It is a technical amendment.
Amendment No. 29 is also a technical amendment to adapt the UCITS regulations which concern the regulation of UCITS which may be constituted as any one of a number of vehicles to also cater for the ICAV.
Irish Collective Asset-management Vehicles Act 2015
The whole Act, apart from Parts 5, 10 and 12
Amendment No. 30 provides for changes to the Central Bank Act 1942 to take account of the ICAV. Subsection (1) amends section 33AK of the Central Bank Act 1942 and is necessary to provide a gateway for the Central Bank to furnish information to the Office of the Director of Corporate Enforcement concerning its functions under the Irish Collective Asset-management Vehicles Bill. Such a gateway is already provided for the passing of information by the Central Bank to the ODCE relating to breaches of the Companies Act, but it is obviously of paramount importance in the context of the Irish Collective Asset-management Vehicles Bill, given the dual enforcement role of both agencies.
Amendment No. 31 is a technical amendment that seeks to clarify and confirm the role of the Office of the Director Corporate Enforcement in the context of the ICAV regime. The amendment particularly concerns the functional powers of the Office of the Director Corporate Enforcement. It specifically cross-applies sections 953, 956 and 957 of the Companies Act 2014. As a result, section 953 provides that the ODCE is not liable for any act taken or omission pursuant to this Act. Section 956 provides for confidentiality within the Office of the Director Corporate Enforcement when dealing with ICAVs. Section 957 provides for gateways for the disclosure of information by certain bodies to the Office of the Director Corporate Enforcement where offences may be carried out by an ICAV manager.
I am grateful to Senators on all sides of the House and to Deputies in the Dáil. The Bill has gone through both Houses following significant discussion and debate but without a vote because Members on all sides of the Houses appreciate the importance of this product to our offering in term of international financial services.
I also pay tribute to the departmental officials who have worked so diligently, even noticing minor issues such as the missing inverted commas mentioned by Senator Feargal Quinn. A huge amount of work has gone into the Bill which arose out of the international financial services strategy in recognition of the fact that we needed to have a product like this to be competitive in our international financial services offering. The Taoiseach, the Tánaiste and I will launch the next phase, our new strategy for the international financial services sector on 11 March.
Senator Sean D. Barrett put a considerable amount of work into the Bill and apologises for not being present as the debate overlapped with something else. He is our expert in this House on transport issues and on that basis did not want to miss the other meeting. He has asked me to express his appreciation and that of the House of the fact that the Minister of State listened and that the officials acted and responded.
On behalf of the Fine Gael group, I thank the Minister of State and all of the officials involved. This is complicated legislation. Senator Sean D. Barrett is accustomed to a different vehicle in terms of transport from this one. However, his expertise was greatly appreciated.
I thank the Minister of State. The debate shows that this House is at its best when we are dealing with such complex legislation which is thoughtfully considered. With Senator Sean D. Barrett's amendments being accepted by the Minister of State, it shows what can be achieved in this House. It certainly sets us apart from the antics in the other House earlier today.
I thank the Minister of State and Senators for passing the Bill today.
When is it proposed to sit again?
Next Tuesday at 2.30 p.m.