Dáil Éireann Debate, Tuesday - 9 November 2021
278. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he and his Department continue to monitor the activities of investment funds here with particular reference to the need to ensure that their activities are strictly in accordance with their operational licence; and if he will make a statement on the matter. [54729/21]
View answerThe Central Bank of Ireland is the independent financial regulator in Ireland and is responsible for the authorisation and supervision of investment funds originating in and fund service providers operating in Ireland. The legislative framework that applies to investment funds includes European and domestic legislation along with Central Bank regulations and guidance.
The Central Bank, as the independent financial regulator, is committed to effective supervision in keeping with its mandate to safeguard financial stability, protect investors as well as protecting market integrity. In carrying out this mandate in respect of investment funds, I am advised by the Central Bank of the following:
At the authorisation stage of an investment fund, the Central Bank assesses a number of areas when considering whether the asset composition of a proposed fund is appropriate. Since 2019, all funds seeking to undertake atypical strategies, must make a pre-submission to the Central Bank and receive pre-clearance. In terms of ongoing supervision of the activities of funds in relation to their authorisation, the Central Bank is rigorous in its assessment of risks having regard to the evolving market and risk landscape, ensuring that funds can clearly demonstrate their compliance with their legislative and regulatory obligations is integral to this process.
The Central Bank is constantly seeking to evolve and improve its approach to assessing applications. These processes are targeted at mitigating the prevailing key risks for investors and maintaining the integrity of the market. Using this risk-based approach means that the Central Bank is equally focused on the risks that new funds may introduce into the financial system, as well as the quality of disclosure in fund documentation and continuing compliance with regulatory obligations. The Central Bank’s approach is also informed by the evolving regulatory environment for investment funds, particularly at a European level with respect to: the Central Bank’s risk outlook, work underway at the European Securities and Markets Authority (ESMA), and the regulatory practices in place in other EU and international jurisdictions.
There are two main categories of funds authorised by the Central Bank, UCITS (Undertakings for Collective Investment in Transferable Securities) and Alternative Investment Funds (AIFs). In both cases, the Central Bank of Ireland has the power to revoke or withdraw a fund’s authorisation if certain breaches occur.
UCITS are investment funds regulated at EU level, designed with the retail consumer in mind. The Central Bank may revoke the authorisation of a UCITS if it appears to the Central Bank that any of the requirements for the authorisation of the UCITS are no longer satisfied.
Alternative Investment Funds (AIFs) are any funds that are not UCITS. The Alternative Investment Fund Managers Directive (AIFMD), is not a product based regulation, but is instead focused on the supervision of the asset manager. Under the AIF Regulations, the Central Bank may withdraw the authorisation granted to an AIFM where the AIFM breaches certain conditions, including the contravention of any of the regulations. Additionally, an Alternative Investment Fund Manager (AIFM) must notify the Central Bank before implementation of any proposed changes that would materially affect the basis on which the authorisation had been granted to it, or on which the Central Bank has attached any conditions to the authorisation.
In conclusion, I am advised by the Central Bank that it is rigorous in its assessment and monitoring of the activities of investment funds, with particular regard to the evolving market and risk landscape, and ensuring that funds can clearly demonstrate their compliance with their legislative and regulatory obligations is integral to this process.
