Irish Funds Madrid Seminar 2018 10 April 2018 2
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Welcome Address Ms Síle Maguire Ambassador of Ireland to Spain
Irish Funds An Introduction Kieran Fox Irish Funds
Irish Funds Industry Overview
A Global Funds Centre
For Global Distribution
Total Assets under Administration - split between Irish domiciled & Non-Irish funds Source: Central Bank of Ireland December 2017 10
Irish Domiciled Assets UCITS represent 75% of Irish Domiciled Assets 88 UCITS Man Cos 161 AIFMs Registered or Authorised 642 AIFMs operating in Ireland on cross border basis 410 ICAVs established (since 18 March 2015) 11 Source: Central Bank of Ireland 2018
% Growth Growth of Largest European Fund Domiciles 140% 120% 100% 80% 60% 40% 20% 0% 2011 2012 2013 2014 2015 2016 2017 2011 2012 2013 2014 2015 2016 2017 Europe 0% 13% 23% 42% 58% 78% 97% Luxembourg 0% 14% 25% 48% 67% 77% 98% Ireland 0% 16% 27% 57% 80% 98% 126% France 0% 9% 10% 14% 21% 29% 37% Germany 0% 13% 24% 40% 53% 66% 80% UK 0% 17% 35% 59% 79% 77% 99% Source: EFAMA Statistics Europe Luxembourg Ireland France Germany UK
Net Sales into Irish Domiciled Funds > 30% of net sales into all European funds in 2017 Source: Central Bank of Ireland 2018 13
Other Developments. Updating of Ireland s Investment Limited Partnership Legislation Legislative amendments approved by Irish Government. Entering legislative process Will provide additional scope for private equity and real asset funds. European Commission ESAs Proposals While there are aspects to the European Supervisory Authorities (ESAs) proposals we welcome, there are a number of areas which are of significant concern. We have shared our views in Ireland and in Europe. Strong advocates of delegation to globally based experts. Loan Origination New enhancements have been made to the L-QIAIF. Tax Transparency OECD has awarded Ireland the highest international rating on tax transparency and exchange of information. EU Cross Border Distribution Consultation on removing barriers to Cross Border Distribution submitted 2016 and follow-up questionnaire completed 2017. We have subsequently met with the European Commission. Expected Q1 2018
Other Developments. Pan European Personal Pension Plan (PEPP) Industry white paper published on PEPP. We have subsequently met with the European Commission. Financial Action Task Force (FATF) Mutual Evaluation Report (MER) of Ireland FATF s assessment of Irelands anti-money laundering and counter terrorist financing concluded that Ireland has a sound and substantially effective regime to tackle money laundering and terrorist financing. In addition the Report highlights National coordination mechanisms and the Private Sector Consultative Forum (PSCF) were fruitful in broadening the understanding of its ML and TF risks across all relevant agencies and with the private sector. CBI engagement re Exchange Traded Funds (ETF) Responded to Central Bank of Ireland (CBI) ETF discussion paper and engaged with the CBI throughout the process. Consultation paper on CIS Liquidity Risk Management Response provided to the International Organization of Securities Commission (IOSCO) Consultation paper.
Conclusion EU Member & Strategically Positioned + International Hub for Globally Distributed Investment Funds + Unrivalled Experience and Expertise in the Widest Range of Fund Structures
Panel Discussion: Why Ireland? Your European Hub Moderator: Sarah Murphy, PwC Panellists: Brendan Hayes, ICR David Stocks, Omega Jennifer Fox, Dillon Eustace Juan Prieto, Corporance Asesores De Voto
Update on Brexit Ken Owens, PwC
Brexit: three interdependent themes Current context OVER 2,400 IRISH FUNDS SOLD TO UK INVESTORS Target outcome Continuity in UK investor access to Irish funds Distribution Management Models ( Delegation ) $636bn IN IRISH FUND ASSETS MANAGED BY 175+ UK FIRMS IN IRELAND SOURCE: Lipper IM Dec 2016 Monterey Ireland Fund Report 2017 Growth Increase Ireland s growth trajectory as an international asset management centre Continuity in UK firm management of Irish funds 19
Brexit Timeline Indicative Deadline for MiFID & ManCo with Add On Authorisation June 2018 Indicative Deadline for SMIC & Delegating Super ManCo Authorisation August 2018 Possible Transition Period 20
International asset management centre Opportunity Benefits Re-affirmation of Ireland s attractiveness as an international asset management centre The Basics Predictability / efficiency of regulatory process 12.5% corporate tax rate Common law system Only English-speaking country in the Eurozone Less expensive than Zurich, Paris & Luxembourg 1 Growth Asset Manager Activity 800+ investment firms active in Ireland 4 Increased presence of front office activities 18 of the top 20 global AMs have Irish funds 4trn total AuA, 300bn managed from Ireland 2 AM counterparties already in transit from UK NOTES: 1. Source PwC 2. http://www.iaim.ie/why-ireland (STEM = Science, Technology, Engineering & Mathematics) & http://www.hea.ie/sites/default/files/awards_- _all_undergraduate_by_level_and_field.xlsx 3. IFS 2020 Action Plan 2017 (http://finance.gov.ie) & IDA Ireland 4. MiFID firms, UCITS ManCos, Irish AIFMs & Non-Irish AIFMs - CBI Infrastructure Space for 100K new employees by 2020, 100K new houses 3 Leading global tech centre & fintech location London-Dublin: Most flight options in Europe 35K+ employed in international financial services in Ireland, 16K in funds industry 130K degree-level graduates across business, law and STEM w/ 20K new grads p.a. 2 Solution Provide managers with options to support the establishment of a physical presence in Ireland 21
Brexit: key points to pursue Encourage UK Treasury & FCA to recognise Irish funds as eligible investments for UK investors post-brexit Distribution Encourage ESMA to negotiate a co-operation agreement with the FCA as a 3 rd country regulator under AIFMD, with subsequent signing by CBI. Management Models Distribution Management Models ( Delegation ) Encourage the Irish Government to support growth in employment, diversifying skill sets and infrastructure to assist businesses relocating to Ireland due to Brexit. Growth Growth Our three key themes are interdependent. 22
Structuring options: Management models Global Asset Managers Regional Asset Managers Multiple Asset Manager types MiFID Firm Super ManCo w/ Add-on Authorisations ( v2 ) Super ManCo w/ Delegates ( v1) SMIC Wider range of permissions available v2 : add-ons enable management w/out MiFID manager as delegate, including mandates v1 : widely used standard model w/ delegation option Simple option for single umbrella fund DEFINITIONS: Management Models ( Delegation ) MiFID Firm : Investment firms authorised under Markets in Financial Instruments Directive (2007, to be replaced by MiFID 2 / MiFIR in January 2018) Super ManCo : authorised to provide services to UCITS and AIFs w/ the option of add-on authorisations for segregated mandates SMIC : Self-Managed Investment Company 23
Current developments Areas where further negotiations are required include geographical indications of various goods, Data Protection and the automatic recognition of judgements. Two significant areas of divergence exist: (1) the governance of the Withdrawal Agreement; and (2) Northern Ireland border issue. Negotiations will continue on the Future Relationship between the EU and the UK. The EU negotiating guidelines have been updated with new text which suggests the EU will aim to conduct future financial services trade based on reviewed and improved equivalence mechanisms. Nothing is agreed until everything is agreed. 28 March: UK regulators have provided some welcome clarity on what this means for European Economic Area (EEA) firms passporting into the UK. EU regulators have made no announcements about any relief afforded by the transition agreement for firms looking to move activity to the EU, however. This difference in approach is expected to continue, pending political progress in the negotiations about the likely future state arrangements
CBI enhances its Authorisation Processes The Central Bank has now concluded a comprehensive review of the way it deals with the issues covered by the three ESMA Opinions. During the review, the Central Bank identified process enhancements, related to the authorisation of investment fund managers authorised under the UCITS Directive and AIFMD and investment firms authorised under MiFID. The application forms for UCITS Management Companies, UCITS Self- Managed Investment Companies, Alternative Investment Fund Managers (AIFMs) and MiFID Firms will be updated to incorporate the following requirements: Details and rationale for the geographical distribution of planned activities. Objective justification for delegation arrangements in relation to critical functions. Details of due-diligence undertaken during selection process. Information on Business Continuity arrangements. Information on how Legal Risk is assessed. Details on Delegate Remuneration Requirements. Details on how Best Execution obligations continue to be met when dealing with execution venues outside of the EU. In the interim until the relevant application forms have been updated, the items listed above will be incorporated as part of the Central Bank s authorisation process.
Structuring options: detail Self Managed Investment Company (SMIC) Super ManCo w/ Delegates ( v1 ) Super ManCo w/ Add-on Authorisations ( v2 ) MiFID Firm Authorisation indicative timeline Allow 6 to 8 months during high volume periods Allow 6 to 8 months during high volume periods Allow 8 to 9 months during high volume periods Allow 9 to 10 months during high volume periods Activities (PM = portfolio management, RM = risk management) Retain oversight of PM & RM but delegate day to day activities Retain oversight of PM & RM but delegate day to day activities Performs day-to-day PM & RM Full range of services Manage other fund umbrellas? No Yes Yes Yes Manage/advise Segregated Mandates? No No Yes, via add-on licenses without need for MiFID delegate Yes Substance requirements 2 Irish-resident directors 2-3 Designated Persons 1 2-3 Irish-resident directors 1 2-3 Designated Persons 1&2 2-3 Irish-resident directors 2-3 Designated Persons 1 Chief Investment Officer / Managing Director Head of Risk/Compliance and Finance, internal audit. 2 Substantive presence required in Ireland 3 Specific roles based in Ireland 2 : Legal & compliance Financial control Risk Management Delegation / Outsourcing CBI permits delegation of dayto-day PM and/or RM activities CBI permits delegation of day-to-day PM and/or RM activities CBI permits delegation of day-to-day PM and/or RM activities Outsourcing allowed (including to other EEA states or 3 rd countries) if in line with applicable law and best practice 1. Designated persons not all required to be Irish resident and can be directors or employees of the Investment Manager. For low PRISM rated firms, half of the directors and at least 2 Designated Persons performing half of the managerial functions are required to be EEA-resident. For medium PRISM rating firms, 3 directors or 2 directors plus 1 designated person should be Irish resident. 2. The need for specific roles may differ on a case-by-case basis, depending on complexity and number of branches. 3. Substantive presence for MiFID: the firm s board and management run the firm from Ireland and make decisions in Ireland with sufficient staff and resources to manage the risks. 26
Structuring options: pros & cons SMIC Super ManCo w/ Delegates ( v1 ) Super ManCo w/ Add-on Authorisations ( v2 ) MiFID Firm Capital Required 300,000 initial capital (which can be met using shareholder funds) One quarter of its total expenditure in its most recent annual accounts and 125,000 plus an additional amount of up to 0.02% of any AUM exceeding 250m whichever is greater, subject to a maximum amount of 10million One quarter of its total expenditure in its most recent annual accounts and 125,000 plus an additional amount of up to 0.02% of any AUM exceeding 250m whichever is greater, subject to a maximum amount of 10million Will be calculated in accordance with CRD IV / CRR requirements Pros Works well if no other funds managed Less staff on the ground Can manage multiple fund umbrellas Can passport to other EEA jurisdictions Less staff on the ground than v2 or MiFID option Can perform full PM activities or delegate Can manage multiple fund umbrellas & mandates Can passport to other EEA jurisdictions Less staff on the ground than MiFID option Wide range of permissions/potential business lines available Can passport throughout EEA without seeking additional authorisations Cons Cannot perform all PM activities Cannot manage or advise mandates Must delegate to regulated investment manager Cannot perform all PM activities Cannot manage mandates More staff on the ground than SMIC or v1 option Add-on authorisations possible, which may be subject to local review when passporting to other EEA jurisdictions More staff on the ground Subject to CRD IV / CRR requirements MiFID 2 changes in Jan-2018 27
Panel Discussion: Alternatives and opportunities in this area Moderator: Jorge Revilla, KPMG Panellists: Laura Gonzáles, Allfunds Bank Des Fullam, Carne José María Amusategui, Cygnus Asset Management
Closing Remarks Patrick Atkinson, PwC
Annual Global Funds Conference 2018 Now in its 20th year, the Irish Funds Annual Global Funds Conference is a highlight of the international funds industry calendar. The conference brings together prominent industry speakers to discuss current issues and challenges facing the global funds industry. For further information on registration, sponsorship and exhibition please visit /conference2018.
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