Regulation dominates annual Irish fund industry conference
The financial crisis and the subsequent international regulatory response dominated the annual Irish Fund Industry Association conference.
Enda Kennedy, the Irish Taoiseach (prime minister, pictured), has highlighted an increasingly centralised regional regulatory regime, where power is shifting from European domestic regulators to Brussels.
“The government is acutely aware that regulatory developments in Europe pose both opportunities and challenges for the industry,” he told the Irish Funds Industry Association’s annual conference, while pledging the support of his office and the Department of Finance.
A major talking point at the conference was the implementation of the Alternative Investment Funds Managers Directive (AIFMD) into the Irish regulatory framework.
Matthew Elderfield, deputy governor of the Central Bank of Ireland (CBI), promised a rethink of the Irish non-Ucits regulations in light of the AIFMD, which comes into force July 2013.
“Our current domestic regime has evolved piecemeal over many years,” Elderfield said.
The CBI is re-examining the case for retaining elements of domestic standards that exceed European Union requirements. Those not in the public interest will be dropped.
The Irish regulator is exploring a number of options. Discussions have already started regarding the creation of a new category of funds based on AIFMD minimum standards. These would allow for full passporting, without additional Irish legal requirements.
The CBI is also reviewing Ireland’s qualifying investor fund (QIF) regime.
“We are itemising the differences between the AIFMD requirements and the QIF regime for funds and reviewing each in turn,” said Elderfield.
Ireland-specific directed brokerage programme requirements may also disappear. The deputy governor said AIFMD rules on conflicts of interest, best execution and annual account disclosure already “provide adequate comfort to investors”.
The promoter regime for non-Ucits may also change or require additional guidance on procedures for funds that run into financial and operational difficulties.
Fund authorisation is also under the microscope. Elderfield conceded that the industry still relies extensively on manual processes and hard copies of documents.
Automating processes must not compromise quality, however. “Sometimes the quality of applications can be uneven and incomplete,” he admitted.
Elderfield also warned against authorisation applications that test the boundaries of European law, often from “highly inventive and over-exuberant lawyers”.
A task force comprising the Central Bank of Ireland, the Department of Finance and the industry is working on proposals. A consultation paper is likely to appear in a matter of weeks.
Speaking after the conference, Kieran Fox, business development director for the Irish Fund Industry Association, admitted any changes to Irish depositary arrangements would entail the most work.
Fox also pointed out that Ireland’s offshore industry is better placed than others to adapt to new requirements.
“Irish non-Ucits regulation already requires a depositary. Most other jurisdictions do not,” he said.
Within a European context, Fox believes Ireland is already closer to the AIFMD than many other jurisdictions.
Changes will be a “small step” for the 1,500 to 2,000 Irish-domiciled funds and up to €250bn assets affected by the new directive.
The financial crisis itself and its impact on the Irish economy also came in for scrutiny. While many speakers and delegates worried about job and salary cuts, there was at least some good news.
According to Department of Finance figures, Irish unit labour costs have dropped 22% below the eurozone average in the past four years. In contrast, Luxembourg’s costs are the highest.
A mixture of wage cuts and productivity increases is already attracting inward investment and fund flows. Based on data from the European Fund and Asset Management Association, Ireland attracted bigger net flows in 2011 than any other European domicile.
In the past year, Irish-domiciled assets passed the €1trn mark. Assets under administration hit €2trn.