Legal Updates

Dominated by planning for key legislative requirements under the SFDR and the PRIIPs Regulation which entered into force on 1 January 2023, 2022 also saw the asset management sector adapting to new economic sanctions introduced in response to Russia’s invasion of Ukraine, increasing inflation rates and a period of significant political uncertainty in the UK.

However, 2023 is shaping up to be an equally busy year for funds and their management companies[1]. What follows is an overview of some key dates which should be appearing in your compliance calendar for 2023 and a synopsis of some of the legal and regulatory developments we can expect in the next twelve months.[2][3]

Key Dates

Date	Matter	Suggested action to be taken
1 January 2023	Funds falling within the scope of Article 8 or Article 9 of the SFDR (ESG Funds) must incorporate and publish an “ESG” annex into their prospectus/fund supplements which satisfy the relevant Level 2 measures published under the SFDR.	Pre-contractual annexes have already been filed and published.
1 January 2023	The website disclosures of any ESG Fund and/or (ii) those fund management companies either required or choosing to report under Article 4(1) of the SFDR must be updated to comply with the additional disclosure obligations imposed under the relevant Level 2 measures published under the SFDR.	Engage with relevant stakeholders to ensure that relevant website disclosures are updated in line with applicable Level 2 measures published under the SFDR.
1 January 2023	The annual financial statements of any ESG Fund published on or after 1 January 2023 must incorporate an “ESG” annex which satisfies the relevant Level 2 measures published under the SFDR.	Engage with relevant stakeholders to ensure that all disclosures required to be included under the SFDR Level 2 Measures are included in any annual financial statements published on or after 1 January 2023.
1 January 2023	All UCITS funds which are made available to EEA retail clients must prepare and publish a PRIIPs KID from this date.	Ensure that a PRIIPs KID is provided to all EEA retail investors to whom a UCITS fund is made available from 1 January 2023 onwards.
1 January 2023	All QIAIF or RIAIF funds which produce a PRIIPs KID must revise same in line with revised Level 2 measures published under the PRIIPs Regulation.	Ensure that the PRIIPs KID has been updated in line with revised Level 2 measures by 1 January 2023.
1 January 2023	All UCITS management companies, AIFMs and Irish corporate UCITS and AIFs must review and update their whistleblowing policies and internal reporting channels and procedures in line with the Protected Disclosures (Amendment) Act from this date.	Ensure that appropriate internal reporting channels and procedures are implemented and reflected in a revised whistleblowing policy by 1 January 2023.
31 January 2023	Deadline for all Irish UCITS management companies and AIFMs to file annual confirmation of ownership with the Central Bank of Ireland (Central Bank).	Filing of confirmation of ownership to be made with the Central Bank by 31 January 2023.
20 February 2023	Closing date for responding to the ESMA consultation on guidelines on funds’ names using ‘ESG’ or sustainability-related terms.	If desired, submit a response to the ESMA consultation by the applicable deadline.
21 February 2023	All UCITS which continue to prepare a UCITS KIID must file updated KIIDs which contain updated performance data for the period ended 31 December 2022 and which incorporate any other required revisions with the Central Bank no later than 21 February 2023.	Ensure that all UCITS KIIDs are updated and filed with the Central Bank by the applicable deadline.
23 February 2023	Closing date for responding to the Central Bank's CP152 on Own Funds Requirements for UCITS management companies and AIFMs with IPM permissions.	If desired, submit a response to the Central Bank’s consultation paper by the applicable deadline.
28 February 2023	Deadline for filing the fund profile return for all Irish authorised sub-funds with the Central Bank.	Fund profile return to be prepared and filed with the Central Bank by the applicable deadline.
28 February 2023	Deadline for filing the annual PCF confirmation for both Irish authorised UCITS management companies/AIFMs and Irish authorised investment funds with the Central Bank under its Fitness & Probity regime.	F&P confirmation to be filed with the Central Bank by the applicable deadline.
[TBC] end-February 2023	Fund management companies with a PRISM Impact Rating of Medium Low or above to submit an updated outsourcing register, with the reference date of 31 December 2022, to the Central Bank via the Online Reporting System (ONR).	Updated outsourcing register to be filed by in-scope fund management companies with the Central Bank by the applicable deadline.
30 June 2023	Fund management companies which (i) are obliged due to their size; or (ii) which have chosen to report on the principal adverse impacts of investment decisions on sustainability factors must publish their first full PAI statement on their website on or before this date.	In-scope fund management companies must prepare and publish their first full PAI statement on their website by the applicable deadline.
1 December 2023	Irish fund management companies must be in a position to evidence actions/plans taken to address the Central Bank’s Cross-Industry Guidance on Operational Resilience by this date at the latest.	To the extent not already initiated, Irish fund management companies should now implement a project plan to review the Central Bank guidance against existing operational resilience arrangements to identify and implement changes which will need to be made to those arrangements by 1 December 2023 in order to meet the supervisory expectations of the Central Bank.
31 December 2023	Transitional provisions applicable to the third-country benchmark regime under the Benchmarks Regulation is due to expire unless the European Commission exercises its powers to extend such transitional period for a further two years until 31 December 2025.	Fund management companies should keep developments in this area under review.

Legislative and Regulatory Developments and Areas of Focus in 2023

Sustainable Finance

In addition to the upcoming deadlines outlined above, fund management companies are likely to be monitoring other developments within the sustainable finance sphere closely during 2023. The following are likely to be of particular interest:

(i) Additional guidance on certain aspects of the SFDR

In September 2022, the European Supervisory Authorities (ESAs) submitted a list of questions to the European Commission on certain key elements of the SFDR framework, including seeking clarity on the definition of “sustainable investment” and what is meant by “consideration” of principal adverse impacts of investment decisions on sustainability factors and the scope of Article 9(3) of the SFDR amongst others.

The European Commission indicated in a speech in December 2022 that it will issue a first set of Q&As on the SFDR early in 2023 to provide further clarity on certain specific points. Depending on the guidance issued by the European Commission, fund management companies may need to adapt their existing SFDR framework in order to align with the European Commission’s expectations.

(ii) ESMA’s proposed guidelines on fund names

Under the proposals put forward by ESMA in a consultation published in November 2022 which could have implications for the portfolio construction of impacted funds, any fund which includes ESG or other sustainability-related terms in its name will be required to comply with certain quantitative thresholds, including the following:

• Any fund which contains the term “ESG” or other ESG-related terms (including for example “climate change” or “biodiversity”), must use a minimum proportion of 80% of its investments to meet the environmental or social characteristics promoted by the fund/the sustainable investment objective of the fund in accordance with the binding elements of the investment strategy; and

• Any fund which contains the term “sustainable” or any derivative of that word must allocate within the 80% bucket referred to in (i) above, at least 50% of minimum proportion of sustainable investments within the meaning of the SFDR.

ESMA also proposes that any fund which contains an ESG or sustainability-related term in its name must also comply with the exclusion criteria applicable to Paris-aligned benchmarks in respect of all investments in the fund.

(iii) Continued focus on greenwashing and adaptation of risk management frameworks

In November 2022, the ESAs issued a Call for Evidence on potential greenwashing practices at both entity and product level in the EU financial sector, explaining that the feedback received will help to inform both an interim and final progress report which the ESAs must each provide to the European Commission detailing greenwashing risks and occurrences in the EU financial sector and on the supervisory action taken and challenges faced to address those risks.

ESMA has also indicated that it will conduct a common supervisory action in conjunction with all EU member states on greenwashing in the funds sector in 2023.

We expect that the appropriateness of fund and entity-level sustainability-related disclosures will continue to be an area of supervisory focus for the Central Bank. It has also noted that the integration of sustainability risk and climate risk[4] into the risk management framework of fund management companies will be an area of interest for it. Other areas of focus for the Central Bank in the sustainable finance sphere in 2023 are detailed in its recent Information Note.

(iv) Revised Level 2 Measures under the SFDR and extension of the EU Taxonomy framework

In October 2022, the European Commission adopted revised SFDR Level 2 Measures which will require fund management companies with funds falling within the scope of the Taxonomy Regulation to use updated pre-contractual and periodic reporting annexes in order to provide information to investors on investments in taxonomy-aligned fossil gas and nuclear economic activities. The European Parliament and the Council of Europe have until 31 January 2023 to scrutinise the revised SFDR Level 2 measures. We await further clarity on the specific date by which in-scope funds will be required to transition to the updated pre-contractual annexes and the filing process which will be implemented by the Central Bank for such filings.

Separately, 2023 may also see the publication of the finalised technical screening criteria (TSC) for the remaining four environmental objectives set down in the Taxonomy Regulation[5]. This will extend the EU taxonomy framework to allow certain economic activities to be deemed taxonomy-aligned provided that the applicable TSC have been met.

(v) Other developments

In its annual work programme for 2023, ESMA identifies delivering on its priorities for sustainable finance as one of its key objectives for the year ahead. This will involve preparing revised SFDR Level 2 measures relating to the PAI disclosure framework by 31 October 2023, which will include developing a “more objective basis to the Do No Significant Harm (DNSH) framework” and significantly expanding on the social indicators under the framework.

ESMA has also noted that it may also be required to provide technical advices to the European Commission on proposed minimum sustainability criteria for financial products that fall within the scope of Article 8 of the SFDR, something which is likely to be closely monitored by fund management companies with Article 8 funds under management.

The FCA in the UK is also expected to publish finalised rules under its proposed Sustainable Disclosure Regime (SDR) in the first half of 2023. In its Consultation Paper on the SDR regime and investment labels, it noted that it intends to publish a separate consultation on how the FCA’s proposals could apply to non-UK domiciled funds marketed to UK retail investors.

Outsourcing

The Central Bank’s cross-sectoral guidance on outsourcing was published in December 2021 (Outsourcing Guidance) and came into effect on the date of publication, with the Central Bank noting that the “supervisory approach to its implementation will be mindful of the adjustments to be made by firms relative to the nature, scale and complexity of the use of outsourcing as an element of their business model”.

Irish fund management companies with a PRISM Impact Rating of Medium Low or above (or its equivalent) were required to complete and file their outsourcing register with the Central Bank in October 2022, while all other Irish management companies may be asked to provide same to the Central Bank on request[6]. Given that the Central Bank now has access to data on outsourcing arrangements implemented by those Irish fund management companies, we expect its supervisory team to be focusing on the assessment of concentration risk. In addition, to the extent not already initiated, we would expect Irish fund management companies to review and, if necessary, update existing contractual arrangements with key service providers in line with the Outsourcing Guidance in the course of 2023.

Operational Resilience

In December 2021, the Central Bank published its cross-sectoral guidance on operational resilience (Operational Resilience Guidance). Irish fund management companies must be in a position to demonstrate that they have revised their governance and risk management frameworks so that they meet the regulatory expectations set down by the Central Bank on management of operational risk and resilience in its Operational Resilience Guidance by December 2023 at the latest[7]. This will involve ensuring that the board and senior management take ownership of the operational resilience framework, identifying critical or important business services and setting of impact tolerances for each of these identified services and continuously reviewing how the fund management company responds and adapts to disruptive or potentially disruptive events so that lessons learned can be incorporated into operational improvements to continually enhance its operational resilience.

Focus on digital operational resilience also continues at EU level. The Digital Operational Resilience Act (DORA Regulation), which creates a harmonised regulatory framework strengthening the ICT security of financial entities, enters into force on 16 January 2023 alongside Directive (EU) 2022/2556, which will amend various other EU directives including the UCITS Directive and AIFMD to bring them in line with the DORA Regulation and due to apply from 17 January 2025.

The Central Bank has indicated that in developing the Operational Resilience Guidance, it has reviewed the more significant and innovative regulatory proposals across the European Union (EU), the UK, Asia, Australia, and the US, including DORA, and that the guidance “aligns with the prominent international thinking”.

An overview of the DORA framework is also available in our recent briefing.

Central Bank Second Consultation on Treatment, Correction and Redress of Errors in Investment Funds

In September 2019, the Central Bank published a consultation paper in which it outlined its proposed approach on a new regulatory framework addressing the treatment, correction and redress of errors in investment funds (Consultation Paper). In the Consultation Paper, the Central Bank proposed a regulatory framework which differentiates based on the type of error and identifies the fund management company as the entity ultimately responsible for ensuring that an error is appropriately rectified as well as providing guidance on redress and the assessment of the materiality of errors.

We understand that the Central Bank will, in the course of 2023, publish a second public consultation paper which will contain its draft guidance on fund errors.

Progression of reforms to the UCITS and AIFMD frameworks

In November 2021, the European Commission published its legislative proposal to amend both the AIFMD and UCITS frameworks (Proposal). The Proposal includes the introduction of minimum substance requirements applicable where an EU management company delegates functions to a third country entity as well as an enhanced regulatory supervision framework for third country delegation arrangements. The European Commission also proposed new rules governing the use of liquidity management tools which will apply to both management companies and competent authorities as well as proposing a new pan-EU loan-origination framework under AIFMD. The Proposal also introduces legislative changes under which UCITS management companies will be required to report certain information to their national competent authority for the first time whilst the scope of reporting required to be made by AIFMs to national competent authorities under the existing framework will be expanded in order to allow national competent authorities to better monitor systemic risk.

During the course of 2022, the Proposal was scrutinised by both the European Parliament and the Council of Europe and it is hoped that the finalised text amending the AIFMD and UCITS Directives can be completed and published in the Official Journal in 2023. EU Member States will then have 2 years to amend existing laws meaning that the changes will not apply until a date in 2025 at the earliest (assuming that the finalised legislation is in fact published in the Official Journal in 2023).

Exchange Traded Funds

Central Bank Supervisory Focus on arrangements in place with Authorised Participants and Market Makers

In July 2022, the IMF published a report on the regulation and supervision of investment funds and special purpose entities in Ireland. One of the recommendations made by the IMF in the Report is that the Central Bank should engage in the short-term with ETF providers to ensure their arrangements with authorised participants and market makers are robust and promote the smooth functioning of the sector, including in times of market stress.

In the course of 2023, we can therefore expect the Central Bank’s supervisory team to focus on the arrangements in place between ETF funds and their authorised participants and market makers which is likely to take the form of a themed inspection or similar exercise.

Publication of IOSCO Report on Good Practices for Considerations for ETFs

In April 2022, IOSCO published a consultation paper on Good Practices for Consideration for ETFs to supplement its 2013 Principles for the Regulation of ETF funds (Consultation Paper).

In the Consultation Paper, IOSCO has identified eleven good practices in the areas of effective product structuring, disclosure, volatility control mechanism and liquidity provision. These include encouraging regulators to consider requirements regarding the disclosure of portfolio holdings and disclosure of basket information by ETFs.

IOSCO is expected to publish its finalised paper on good practices for consideration for ETFs this year. Following the publication of the report, we may see the Central Bank re-considering its current position which requires full daily portfolio transparency by Irish domiciled ETF to permit a more flexible transparency regime for such ETF

For a more detailed overview of the Consultation Paper, please refer to our briefing on this topic.

Irish Property Funds

In November 2022, the Central Bank finalised and published its guidance on leverage and liquidity in Irish authorised funds which invest 50% or more directly or indirectly in Irish property assets (Property Funds) (Guidance).

Under the Guidance, newly established Property Funds will be subject to a 60% total debt-to-total assets limit (Leverage Limit) from date of authorisation. While existing Property Funds must comply with the Leverage Limit by 24 November 2027, the Central Bank has noted in its Guidance that it expects any de-leveraging will be done on a “gradual and orderly manner” and that it expects that such de-leveraging should be “significantly progressed” by the end of year three.

Consequently, management companies with Property Funds currently leveraged in excess of the Leverage Limit will, in the course of 2023, be focused on implementing steps to comply with the Leverage Limit in accordance with the expectations of the Central Bank and putting in place in the short-term mitigation plans where leverage exceeds 50%.

Any Property Fund which is structured as an open-ended fund with limited liquidity will also need to assess the appropriateness of current liquidity timeframes and, if necessary, adjust same in order to ensure compliance with the Guidance by 24 May 2024.

LDI Funds

During the period of extreme volatility in yields from UK gilts late last year, the Central Bank, acting in coordination with the CSSF and ESMA, engaged directly with Irish-domiciled liability driven funds denominated in GBP (LDI funds) to ensure that appropriate levels of resilience to such volatility was maintained by these funds. The Central Bank subsequently wrote to affected funds to outline that it expected such levels of resilience to be maintained on an ongoing basis and to outline the steps which should be taken if an LDI Fund advertently reduced its level of resilience (which includes an obligation to prior notify the Central Bank) or where such resilience decreased as a result of a changing market environment. We can expect the Central Bank to continue to monitor the exposures of such LDI Funds carefully to ensure that they are sufficiently robust to withstand any future unexpected market shocks which may occur. We may also see some coordinated regulatory reform in this area over the coming 12 months as the Central Bank and other international regulators move to improve the minimum levels of resilience for LDI funds more generally.

Review of the Money Market Fund Regulation

In April 2022, the European Commission launched a targeted consultation on the functioning of the Money Market Fund Regulation[8] (MMFR), the results of which were intended to inform its review of the MMFR. This review must also consider ESMA’s opinion on the review of the MMFR which was published in February 2022 as well as the work conducted by the European Systemic Risk Board which published its recommendations on the reform of the MMFR in December 2021.

While it was due to complete its review of the adequacy of the money market fund regulation framework by 21 July 2022, we are still awaiting the publication of a report on that review from the European Commission.

Revision of the ELTIF framework

In response to an acknowledgment that the existing European Long-Term Investment Fund Regulation (ELTIF Regulation) has failed to deliver on its objective of using ELTIF funds as a way in which to improve the financing of EU companies and projects requiring long-term capital, the Council of the EU and the European Parliament have reached provisional agreement on an amending regulation originally proposed by the European Commission (Draft Amending Regulation).

The Draft Amending Regulation broadens the scope of eligible assets which can be acquired by an ELTIF, introduces more flexible diversification requirements as well as introducing a differentiated regime for ELTIFs which are solely marketed to professional investors and those which can be sold to both professional investors and retail investors. It also removes any limitation on the minimum value of real assets that can be acquired by ELTIFs and to reduce the minimum investment threshold in eligible assets to 55%.

The European Parliament is due to consider the finalised legislative text in February 2023 with the expectation being that the enhanced framework will apply towards the end of this year. It is hoped that the revisions of the ELTIF framework at an EU level will provide an impetus for the Irish domestic framework to accommodate ELTIFs within Irish domiciled funds.

For further information on the revised ELTIF framework, please refer to our recent briefing.

Central Bank (Individual Accountability Framework) Regime

July 2022 saw the publication of the Central Bank (Individual Accountability Framework) Bill 2022 (Bill) by the Irish Department of Finance. The publication of the Bill was in response to proposals made by the Central Bank to establish an Individual Accountability Framework (IAF) in its report on “Behaviour and Culture of the Irish Retail Banks” in July 2018 to improve individual accountability in the financial services sector.

Under the Bill, the IAF framework will include the establishment of a “Senior Executive Accountability Regime” (SEAR) as well as the introduction of new enforceable conduct standards (or standards of behaviour) expected of regulated entities, their senior executive functions and other staff, enhancements to the fitness and probity regime and a unified enforcement process which aims to break the existing “participation link” whereby the relevant regulated entity must be found to have committed a breach before individuals within it can be held to account.

Under the SEAR framework, regulated entities will be required to improve their internal processes by clarifying the roles of their senior executive functions. This will be achieved by the creation of individual statements of responsibility, together with a management responsibility map documenting the regulated firm’s wider governance and management arrangements. A legal duty of responsibility will be imposed on those performing senior executive functions to take reasonable steps to avoid the relevant regulated firm committing or continuing to commit a prescribed contravention in relation to the areas of the business for which they are individually responsible.

While the SEAR will initially be applied to a sub-set of regulated entities only (including credit institutions, insurance companies and certain larger investment firms), it is expected to be expanded at a later stage to cover other types of regulated entities, including fund management companies. Furthermore, it is expected that the conduct standards (which will include both common conduct standards applicable to all persons performing a “controlled function” and additional conduct standards for individuals in senior positions) and enhancements to the fitness and probity regime as detailed in the Bill are expected to apply to all regulated entities from the outset.

The Central Bank has indicated that as soon as the Bill is enacted (which is expected to be in Quarter 1, 2023), it will publicly consult and engage with key stakeholders on a suite of secondary legislation and guidance issued under powers afforded to it under the Act.

Given the likely impact of the new IAF on all Irish regulated entities, management companies and their advisors are likely to be closely monitoring the enactment of the Bill and the publication of secondary legislation and guidance giving effect to the framework by the Central Bank in the course of 2023.

Central Bank’s expectations on resourcing and governance in Irish fund management companies

On 7 December 2022, the Central Bank published a Dear Chair Letter providing feedback on the thematic review it carried out of Irish fund management companies’ governance, management and effectiveness (Letter).

The Letter outlines the Central Bank’s expectations for Irish fund management companies in the areas of both resourcing and governance which include the following:

• the adequacy of resourcing should be monitored on an ongoing basis and increased resources and expertise should be employed as the nature, scale and complexity of operations grow;
• a Chief Executive Officer should be appointed except in the case of all but the smallest fund management companies;
• the tenure and independence of directors classified by the Board as independent non-executive directors should be considered as part of the review of Board composition carried out by the Organisational Effectiveness Director and a framework should be implemented in order to ensure a regular rotation of Board members; and
• diversity should be considered as part of ongoing internal governance reviews with due consideration being given to factors such as skills, age, gender, culture and ethnicity.

The Letter states that fund management companies should consider and make any necessary changes to existing resourcing and governance arrangements in light of the Central Bank’s findings as outlined therein.

Developments impacting Fund Management Companies with IPM Permissions

(i) Enhanced regulatory scrutiny from the Central Bank

In its Dear Chair letter published on 7 December 2022, the Central Bank noted that the extent to which Irish fund management companies provide MiFID services such as individual portfolio management has grown exponentially over recent years[9] and reminded such fund management companies of the need to ensure that they are “fully aware and understand” the MiFID obligations to which they are subject and that these are integrated into their risk and compliance frameworks. The Central Bank further noted that this is an area which it will “examine in more detail in the coming period”.

(ii) Central Bank consultation on “own funds” requirements

As noted above, the Central Bank is currently consulting on the own fund requirements which should apply to Irish UCITS management companies and AIFMs with IPM permissions.

Under the Central Bank proposals, any firm which meets the conditions to be a “small and non-interconnected firm” will be subject to the own funds requirements set down in the Irish UCITS Regulations or the Irish AIFM Regulations, as applicable, while all other management companies will be subject to bespoke own fund requirements, being the higher of (i) the own funds requirement set down in the Irish UCITS Regulations or Irish AIFM Regulations and (ii) a Risk to Client-K factor own fund requirement.

(iii) ESMA Guidelines on MiFID II Suitability Requirements

In September 2022, ESMA published a final report containing its updated guidelines on certain aspects of the MiFID II suitability requirements (Guidelines).

The revised Guidelines have been updated to address the topic of sustainability and include guidelines on the collection of information from clients on their sustainability preferences, how to assess such sustainability preferences and staff training on sustainability topics and record keeping obligations amongst others.

The Guidelines will apply 6 months from the date of their publication on ESMA’s website in all EU official languages meaning that management companies with IPM permissions are likely to become subject to the Guidelines in the course of 2023. Governance and organisational arrangements relating to suitability assessments should therefore be reviewed and updated by in-scope management companies to ensure that they comply with the Guidelines in respect of clients to whom they provide IPM services.

(iv) ESMA Guidelines on Product Governance

In July 2022, ESMA consulted on a revised set of guidelines on product governance which it updated to address, amongst other items, the sustainability-related amendments to the MiFID II product governance rules which took effect on 22 November 2022 as well its findings on its 2021 common supervisory action on product governance amongst other amendments. ESMA has noted that it expects to publish a final report and final guidelines in Quarter 1, 2023. If this timeframe is adhered to, the revised guidelines may begin to apply towards the end of 2023.

ESMA report on its CSA on Valuation Issues in Investment Funds

In its Annual Work Programme for 2023, ESMA notes that it will report on the outcome of the common supervisory action carried out on the valuation of less liquid assets in 2023.

Data Protection

In the area of data protection, EU-US data transfers are likely to be an area of focus in 2023. On 13 December 2022, the European Commission published its draft adequacy decision on the proposed EU-US Data Privacy Framework (Draft Adequacy Decision) under which it provided a detailed assessment of the US legal framework for state surveillance and concludes that this framework ensures an adequate level of protection for personal data transferred from the EU to US companies.

The new privacy framework is based on a self-certification process under which US companies will be able to certify their participation in the EU-US Data Privacy Framework by committing to comply with a detailed set of privacy obligations (such as purpose limitation and data retention, as well as specific obligations concerning data security and the sharing of data with third parties).

The Draft Adequacy Decision is now being considered by the European Data Protection Board. If adopted by the European Commission, it will allow EU data controllers and data processors to transfer personal data to participating US companies without being required to implement any other data transfer tool under the GDPR or to perform a transfer impact assessment which is currently the case.

The finalised adequacy decision is expected to be adopted and published in the first half of 2023.

Benchmarks Regulation Reform

To date, EU management companies have been permitted to use benchmarks administered in a country outside the Union for the purposes set down in the Benchmarks Regulation[10].Under the current text of the Benchmarks Regulation, EU management companies can no longer use third country benchmarks for the purposes set down in the Benchmarks Regulation after 31 December 2023 without (i) an equivalence decision from the European Commission in respect of specific third country administrators or benchmarks or (ii) the relevant benchmark administrator being recognised or endorsed by an EU competent authority under the third country benchmark regime and appearing on the relevant ESMA register. The European Commission has the power under the relevant legislation to extend the transitional time-frame applicable to the third-county benchmark regime until 31 December 2025 if satisfied that such extension is required. It is required to submit a report to the European Parliament and to the Council by 15 June 2023.

Publication of the finalised MiCA Regulation

The EU Markets in Crypto Assets Regulation, which is intended to create harmonised rules for the issuance and trading of crypto-assets at EU level as well as to regulate related activities and services, is expected to enter into force in the first half of 2023. The MiCA Regulation identifies and covers three types of crypto-assets, namely asset-referenced tokens, electronic money tokens and other crypto-assets not covered by existing EU law and will, subject to certain exceptions, generally apply 18 months after the legislation enters into force meaning that the expected application date for the majority of provisions will be no earlier than Q4 in 2024. However, the rules governing asset-referenced tokens and electronic money tokens are expected to apply 12 months after the legislation enters into force.

Money Laundering & Counter Terrorist Financing

During 2023, it is expected that the European Commission, the EU Council and the European Parliament will continue negotiations with the aim of agreeing on a final version of an anti-money laundering regulation (AML Regulation) together with a new directive which will replace the existing MDL4 (as amended by Directive 2018/843, the fifth AML Directive) (MLD6). The AML Regulation and MLD6 form part of the package of legislative measures proposed by the European Commission designed to progress some of the key pillars of its May 2020 AML/CFT Action Plan. This package also consists of a regulation establishing a new EU anti-money laundering authority which will have powers to impose sanctions and penalties and a regulation recasting the regulation on transfers of funds which aims to make transfers of crypto-assets more transparent and fully traceable. The package of proposals intends to facilitate a new and more coherent AML/CFT regulatory and institutional framework in the EU.

Conclusion

We look forward to continuing to work with our clients on the wide range of topics outlined above during the course of 2023. If you have any questions arising from this briefing, please contact your usual contact in the Dillon Eustace Asset Management and Investment Funds Team.

Footnotes:

[1] References to “management companies” or “fund management companies” in this briefing include UCITS management companies, AIFMs, self-managed UCITS funds and internally managed AIF funds unless otherwise indicated.

[2] This briefing does not include filing requirements in respect of any filing where the filing date is determined with reference to the relevant entity’s annual accounting date (such as the filing of annual and semi-annual financial statements with the Central Bank) nor does it address any tax-related deadlines to which funds and fund management companies may be subject. Periodic reviews of matters such as the risk management framework, business plan and policies and procedures of fund management companies as well as any other actions required to be taken under the Irish Funds Corporate Governance Code are also excluded from the remit of this briefing. In addition, it does not address other matters where a set date for compliance has not been applied, including for example (i) the obligation imposed on fund management companies which have chosen to implement a shareholder engagement policy under SRD II to provide shareholders with information on their website on how that policy has been implemented in the previous 12 months or (ii) the obligation imposed on Irish UCITS management companies (and Irish UCITS SMIC) by the Central Bank to carry out a viability and suitability assessment of each Irish-domiciled UCITS under management when assessing the investment manager’s annual presentation. Irish domiciled managers of MMFs will also be required to report certain prescribed information to the Central Bank of Ireland in accordance with Article 37 of the MMFR on a periodic basis during the course of 2023.

[3] In each case, the dates for filing of returns with the Central Bank are estimated only and may vary from firm to firm. Clients should therefore refer to the firm’s ONR for specific filing date imposed by the Central Bank for each return.

[4] The Central Bank’s expectations on management of climate risk are set down in its Dear Chair Letter dated 3 November 2021.

[5] The remaining four environmental objectives under the Taxonomy Regulation for which technical screening criteria have yet to be finalised and published are (i) the sustainable use and protection of water and marine resources, (ii) the transition to a circular economy, (iii) pollution prevention and control and (iv) the protection and restoration of biodiversity and ecosystems.

[6] As noted above, Irish fund management companies with a PRISM Impact Rating of Medium Low or above are required to file revised outsourcing registers with a reference date of 31 December 2022 with the Central Bank by a date yet to be confirmed in Q1 2023

[7] The Operational Resilience Guidance was published by the Central Bank on 1 December 2021 with the Central Bank noting that it expects “firms to be actively and promptly addressing operational resilience vulnerabilities and be in a position to evidence actions/plans to apply the Guidance at the latest within two years of its being issued.”

[8] Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds

[9] The Central Bank noted that “in 2019, there was approximately €19bn in assets under management for IPM services, this figure has now increased to €432bn”.

[10] Regulation (EU) 2016/1011