On 20 March 2023, the revised ELTIF Regulation containing amendments to the Regulation on European long-term investment funds ("ELTIFs") ((EU) 2015/760) (the "ELTIF Regulation") was published and came into force. It will be apply from 10 January 2024.
ELTIFs allow retail investors the opportunity to invest in companies and projects that need long-term capital within an EU passportable product that incorporates robust governance, diversification and liquidity protections. The ELTIF also presents a significant opportunity to advance ESG objectives given the long-term nature of the underlying investments.
The key changes to the ELTIF regime include amendments to liquidity arrangements, relaxing the investment restrictions and removing barriers to retail investor access.
The ELTIF represents a significant opportunity for the Irish asset management and investment funds industry and interest in the new and improved product has been very strong.
QIAIF investments in digital assets
On 4 April 2023, the Central Bank published a welcome update in respect of the ability of Irish Qualifying Investor Alternative Investment Fund's ("QIAIFs"), to invest in Digital Assets e.g. crypto currencies and NFTs. As part of this update the Central Bank confirmed that:
- Open Ended QIAIFs may obtain indirect exposure to Digital Assets of up to 20% of their NAV without making a pre-submission to the Central Bank provided they meet certain risk management, liquidity and transparency criteria (the "Digital Asset Requirements")
- Closed Ended QIAIF / Open Ended with Limited Liquidity QIAIFs may obtain indirect exposure of up to 50% of NAV to Digital Assets without needing to make a pre-submission to the Central Bank provided the Digital Asset Requirements are in place; and
- All QIAIFs may obtain direct exposure to Digital Assets only after the QIAIF depositary has confirmed Digital Assets can be safe kept in accordance with the European Union (Alternative Investment Fund Managers) Regulations 2013 (as amended).
This creates new opportunities for asset managers seeking to establish alternative investment funds with exposure to digital assets and is a very welcome development.
ESG developments
Opportunities posed by the rise of ESG in Europe are driving asset managers to continue to consider sustainable investments for Irish domiciled investment funds.
In April, the European Commission's responses to the ESAs' questions of 9 September 2022 provided further welcome clarity on the meaning of a "sustainable investment" under SFDR. The Commission maintained the flexibility of asset managers to carry out their own assessment of each investment and to disclose their underlying assumptions. The Commission cautioned that "this policy choice gives an increased responsibility towards the investment community and means that they should exercise caution when measuring the key parameters of a "sustainable investment".
April also saw the release of the Commission's consultation relating to the proposed technical screening criteria for the four remaining environmental objectives under the Taxonomy Regulation and the ESAs' paper outlining proposed amendments to the SFDR RTS with regard to principal adverse impacts and decarbonisation targets.
Operational resilience tested
The general theme of operational resilience will continue to be important over the next 12 months and beyond for regulated financial service providers, including alternative investment fund managers, UCITS management companies, investment firms, self-managed funds and other fund service providers ("RFSP"). With the deadline of 1 December 2023 for compliance with the Central Bank's cross industry guidance on operational resilience (the "Guidance") fast approaching, each RFSP should be actively and promptly addressing operational resilience vulnerabilities; preparing a self-assessment document and operational resilience framework; and be in a position to evidence actions/plans to apply the Guidance. In-scope RFSPs will need to ensure that they have a holistic approach to the management of operational resilience and related risks, and this is clearly a timely topic for consideration given the wider economic conditions.
Helpfully, certain aspects of the Guidance are in line with the DORA framework due to take effect in January 2025, comprising of two recently published EU legislative acts, Regulation EU 2022/2554 (DORA) and Directive EU 2022/2556 (DORA Amending Directive), relating to digital operational resilience in the financial industry.
By Nicholas Blake-Knox, Partner, Head of Asset Management & Investment Funds, Damien Barnaville, Partner, Eimear Keane, Partner & Aongus McCarthy, Partner
