ESMA Multilateral Memorandum of Understanding with the FCA

The ESMA Multilateral Memorandum of Understanding with the FCA announced by ESMA on February 1st, 2019 will facilitate Irish fund management companies to continue to delegate investment management activities to UK firms post Brexit and UK firms to be able to continue to provide investment services to, and to engage in investment activities with, regulated Irish funds, fund management companies and other per se professional clients and eligible counterparties in Ireland.

• Delegation by Irish fund management companies to UK firms of the investment management of Irish funds post Brexit

Regulation 21(1)(d) of Ireland’s EU (Alternative Investment Fund Managers) Regulations, 2013 (“AIFMD Regulations”) requires that an Irish authorised Irish AIFM or internally managed AIF cannot delegate portfolio management or risk management to a third country firm unless, inter alia, “co-operation between the [Central] Bank and the supervisory authority of the undertaking shall be ensured”.

Similarly, Regulation 23(1)(d) of Ireland’s European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011, as amended (“UCITS Regulations”), requires that an Irish UCITS management company or self-managed UCITS cannot delegate investment management to a third country firm unless, inter alia, “co-operation between the [Central] Bank and the supervisory authorities of the third country concerned is ensured”.

The ESMA Multilateral MOU between EEA regulators and the FCA announced by ESMA on February 1st, 2019 satisfies both of these requirements.

• UK AIFMs acting as AIFMs to Irish AIFs post Brexit

Upon a hard Brexit, UK AIFMs will become third country AIFMs for Irish regulatory purposes. The Central Bank of Ireland has confirmed in its AIFMD Q&A (ID 1129) - (Click here for Q&A) – that, firstly, an Irish AIF can retain or appoint UK AIFMs post Brexit and secondly that the relevant Irish AIF must contractually impose on any third country AIFMs the requirements which the Central Bank imposes on Irish registered AIFMs that act as AIFMs to Irish regulated AIFs. These requirements, which are largely taken from organisational and conduct of business requirements of the AIFMD Regulations, are set out in Part III of Chapter 2 of the Central Bank’s AIF Rulebook.

Procedurally, the Central Bank has requested Irish AIFs that wish to retain UK AIFMs post March 29, 2019 to notify the Central Bank by email by February 22, 2019.

The Central Bank has not requested that legal documentation supporting the AIFM’s appointment be updated but only that if such documentation is required to be updated, that it be submitted to the Central Bank by 1st March, 2019.

• Legal capacity of UK firms to provide investments services to, or engage in investment activities with, Irish clients post Brexit

Regulation 5(5)(b) of Ireland’s European Union (Markets in Financial Instruments) Regulations, 2017 (“MiFID II Regulations”) provides a full exemption for a third country firm which provides one or more investment services to, or engages in one or more investment activities (with or without ancillary services), with, per se professional investors/eligible counterparties in Ireland provided that

1. the firm does not establish a branch in Ireland;
2. is subject to authorisation and supervision in the third country where the third-country firm is established and the third-country firm is authorised so that the appropriate regulatory body in that third country pays due regard to any recommendations of FATF in the context of anti-money laundering and countering the financing of terrorism, and
3. co-operation arrangements that include provisions regulating the exchange of information for the purpose of preserving the integrity of the market and protecting investors are in place between the Central Bank of Ireland and the competent authorities where the third-country firm is established.

The ESMA Multilateral MOU between EEA regulators and the FCA announced by ESMA on February 1st, 2019 satisfies the requirement at “(3)”. The Central Bank of Ireland had previously confirmed that the IOSCO Multilateral Memorandum of Understanding, of which the Central Bank and FCA are signatories, also satisfied this requirement.