S.I. No. 257/2013 - European Union (Alternative Investment Fund Managers) Regulations 2013

PART 1 Preliminary

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PART 2 Authorisation of AIFMs

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PART 3 Operating conditions for AIFMs

CHAPTER 1 General requirements

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CHAPTER 2 Organisational Requirements

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CHAPTER 3 Delegation of Aifm Functions

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CHAPTER 4 Depositary

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CHAPTER 5 Transparency Requirements

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CHAPTER 6 AIFMs Managing Specfic Types of AIF

DIVISION 1

AIFMS MANAGING LEVERAGED AIFS

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DIVISION 2

OBLIGATIONS FOR AIFMS MANAGING AIFS WHICH ACQUIRE CONTROL OF NON-LISTED COMPANIES AND ISSUERS

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CHAPTER 7 Marketing and Managing EU aifs

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CHAPTER 8 Specific Rules In Relation To Third Countries

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CHAPTER 9 Marketing To Retail Investors

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PART 4 Competent Authorities

DESIGNATION, POWERS AND REDRESS PROCEDURES

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PART 5 Transitional and Final Provisions

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SCHEDULE 1

SCHEDULE 2 REMUNERATION POLICY

SCHEDULE 3 DOCUMENTATION AND INFORMATION TO BE PROVIDED IN CASE OF INTENDED MARKETING IN THE STATE BY IRISH AIFMs OR BY AIFMs WHOSE MEMBER STATE OF REFERENCE IS THE STATE

SCHEDULE 4 DOCUMENTATION AND INFORMATION TO BE PROVIDED IN THE CASE OF INTENDED MARKETING IN OTHER MEMBER STATES BY IRISH AIFMs OR BY AIFMs WHOSE MEMBER STATE OF REFERENCE IS THE STATE

S.I. No. 257 of 2013

EUROPEAN UNION (ALTERNATIVE INVESTMENT FUND MANAGERS) REGULATIONS 2013

Notice of the making of this Statutory Instrument was published in

“Iris Oifigiúil” of 30th July, 2013.

I, MICHAEL NOONAN, Minister for Finance, in exercise of the powers conferred on me by section 3 of the European Communities Act 1972 (No. 27 of 1972), and for the purpose of giving effect to Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EU and 2009/65/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1095/2010¹ , hereby make the following regulations:

PART 1 Preliminary

Citation.

Subject matter.

• (a) for the authorisation and ongoing operation of the managers of alternative investment funds who manage or market alternative investment funds in the State (or do both of the foregoing in the State) and provisions for securing the transparency of those activities of them; and

• (b) otherwise giving effect to the Directive.

Scope.

• (a) an AIFM established in the State which manages one or more than one AIF irrespective of whether such AIF is an EU AIF or a non-EU AIF;

• (b) a non-EU AIFM whose Member State of reference is the State;

• (c) an AIFM from another Member State which markets one or more than one EU AIF in the State;

• (d) an AIFM from another Member State which manages one or more than one Irish AIF;

• (e) an AIFM from another Member State which markets one or more than one non-EU AIF in the State; and

• (f) a non-EU AIFM which markets one or more than one AIF in the State.

• (2) For the purposes of paragraph (1), the following shall be immaterial:

• (a) whether the AIF belongs to the open-ended or closed-ended type;

• (b) whether the AIF is constituted under the law of contract, under trust law, under statute, or has any other legal form;

• (c) the legal structure of the AIFM.

• (3) These Regulations do not apply to the following entities:

• (a) holding companies;

• (b) institutions for occupational retirement provision to which Directive 2003/41/EC applies including, where applicable, the authorised entities responsible for managing such institutions and acting on their behalf referred to in Article 2(1) of that Directive or the investment managers appointed pursuant to Article 19(1) of that Directive, in so far as they do not manage alternative investment funds;

• (c) supranational institutions, such as the European Central Bank, the European Investment Bank, the European Investment Fund, the European Development Finance Institutions and bilateral development banks, the World Bank, the International Monetary Fund, and other supranational institutions and similar international organisations, in the event that such institutions or organisations manage alternative investment funds and in so far as such funds act in the public interest;

• (d) the Bank;

• (e) state authorities or local authorities which manage funds supporting social security and pension systems.

• (f) employee participation schemes or employee savings schemes;

• (g) securitisation special purpose entities.

Exemptions.

• (2) Paragraphs (3) to (5) of this Regulation, and no other provision of these Regulations, with the exception of Regulations 48 and 49, shall apply to an AIFM falling within either of the following subparagraphs:

• (a) an AIFM which either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding, manages portfolios of alternative investment funds whose assets under management (including any assets acquired through use of leverage) do not exceed, in total, €100 million; or

• (b) an AIFM which either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding, manage portfolios of alternative investment funds whose assets under management do not exceed, in total, €500 million and those portfolios consist of alternative investment funds that—

• (i) are unleveraged, and

• (ii) have no redemption rights exercisable during a period of 5 years following the date of initial investment in each AIF.

• (3) An AIFM referred to in paragraph (2)(a) or (b) shall—

• (a) register with the Bank,

• (b) at the time of registration, identify itself and the alternative investment funds that it manages to the Bank,

• (c) at the time of registration, provide the Bank with information on the investment strategies of the alternative investment funds that it manages,

• (d) provide the Bank, at regular intervals, with information on the main instruments in which it is trading and on the principal exposures and most important concentrations of the alternative investment funds that it manages in order to enable the Bank to monitor systemic risk effectively, and

• (e) notify the Bank, in the event that it no longer meets the conditions referred to in paragraph (2), of that fact.

• (4) Where the conditions referred to in paragraph (2) are no longer met, the AIFM concerned shall apply for authorisation under these Regulations within 30 days after the date of such occurring in accordance with the relevant procedures specified in these Regulations.

• (5) The Bank may impose such requirements as it considers appropriate on an AIFM which stands registered with the Bank under this Regulation and the AIFM shall comply with any such requirements. Those requirements shall be no more onerous than the requirements to which an authorised AIFM is subject by or under these Regulations.

• (6) An AIFM referred to in paragraph (2)(a) or (b) shall not benefit from any of the rights granted under these Regulations unless it chooses to opt in under these Regulations. Where an AIFM so opts in, these Regulations shall become applicable in their entirety to it.

Interpretation.

“alternative investment fund” or “AIF” means a collective investment undertaking, including investment compartments thereof, which—

• (a) raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors, and

• (b) does not require authorisation under Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS):

“alternative investment fund manager” or “AIFM” means a legal person whose regular business is managing one or more than one AIF;

“Bank” means the Central Bank of Ireland;

“branch”, in relation to an AIFM, means a place of business which is a part of the AIFM, which has no legal personality and which provides the services for which the AIFM has been authorised; where all the places of business of an AIFM, whose registered office is in another Member State or in a third country, are established in the State, they shall be regarded as a single branch;

“carried interest” means a share in the profits of the AIF accrued to the AIFM as compensation for the management of the AIF and excluding any share in the profits of the AIF accrued to the AIFM as a return on any investment by the AIFM into theAIF;

“close links” means a situation in which two or more natural or legal persons are linked by:

• (a) participation, namely ownership, directly or by way of control, of 20 per cent or more of the voting rights or capital of an undertaking,

• (b) control, namely the relationship between a parent undertaking and a subsidiary, as referred to in Regulation 4 of the European Communities (Companies: Group Accounts) Regulations 1992 ( S.I. No. 201 of 1992 ), or a similar relationship between a natural or legal person and an undertaking; for the purposes of this subparagraph a subsidiary undertaking of a subsidiary undertaking shall also be considered to be a subsidiary of the parent undertaking of those subsidiaries.

and a situation in which 2 or more natural or legal persons are permanently linked to the same person by a control relationship shall also be regarded as constituting a “close link” between such persons for the purpose of these Regulations;

“competent authority” means the Bank or, in the case of another Member State, the body or bodies designated by that state to act as a competent authority for the purposes of the Directive;

“competent authorities” in relation to a depositary means:

• (a) if the depositary is a credit institution authorised under Directive 2006/48/EC, the competent authorities as defined in point (4) of Article 4 thereof,

• (b) if the depositary is an investment firm authorised under Directive 2004/39/EC, the competent authorities as defined in point (22) of Article 4(1) thereof,

• (c) if the depositary falls within a category of institution referred to in Regulation 22(3)(c), the Bank;

• (d) if the depositary is an entity referred to in Regulation 22(3)(f), the national authorities of the Member State in which that entity has its registered office and which are empowered by law or regulation to supervise such entity or the official body competent to register or supervise such entity pursuant to the rules of professional conduct applicable thereto;

• (e) if the depositary is appointed as depositary for a non-EU AIF in accordance with Regulation 22(5)(c) and does not fall within any of subparagraphs (a) to (d) of this definition, the relevant national authorities of the third country where the depositary has its registered office;

“competent authorities of the EU AIF” means the national authorities of a Member State which are empowered by law or regulation to supervise alternative investment funds;

“contravene”, in relation to a provision, includes fail to comply with the provision;

“control” means the relationship between a parent undertaking and a subsidiary, in all the cases being the relationship referred to in Regulation 4 of the European Communities (Companies: Group Accounts) Regulations 1992 ( S.I. No. 201 of 1992 );

“employees’ representatives” means employees’ representatives as defined in point (e) of Article2 of Directive 2002/14/EC;

“ESMA” means the European Securities and Markets Authority established by Regulation (EU) No. 1095/2010 of the European Parliament and of the Council of 24 November 2010;

“established”, in relation to a place, means:

• (a) in the case of an AIFM, the AIFM having its registered office in the place;

• (b) in the case of an AIF, the AIF being authorised or registered in the place, or, if the AIF is not authorised or registered, the AIF having its registered office in the place;

• (c) in the case of a depositary, the depositary having its registered office or branch in the place;

• (d) in the case of a legal representative that is a legal person, the legal representative having its registered office or branch in the place;

• (e) in the case of a legal representative who is a natural person, the legal representative being domiciled in the place;

“EU alternative investment fund” or “EU AIF” means:

• (a) an AIF which is authorised or registered in a Member State under the applicable national law; or

• (b) an AIF which is not authorised or registered in a Member State, but has its registered office or head office, or both, in a Member State;

“EU alternative investment fund manager or “EU AIFM” means an AIFM which has its registered office in a Member State;

“external AIFM” shall be read in accordance with Regulation 6(2)(a);

“feeder alternative investment fund” or “feeder AIF” means an AIF which:

• (a) invests at least 85 per cent of its assets in units or shares of another AIF (the “master alternative investment fund”),

• (b) invests at least 85 per cent of its assets in more than one master alternative investment fund where those master alternative investment funds have identical investment strategies; or

• (c) has otherwise an exposure of at least 85 per cent of its assets to such a master alternative investment fund;

“financial instrument” means an instrument specified in Part 3 of Schedule 1 to the European Communities (Markets in Financial Instruments) Regulations 2007 ( S.I. No. 60 of 2007 );

“holding company” means a company with shareholdings in one or more other companies, the commercial purpose of which is to carry out a business strategy or strategies through its subsidiaries, associated companies or participations in order to contribute to their long-term value and which is either a company:

• (a) operating on its own account and whose shares are admitted to trading on a regulated market in the European Union, or

• (b) not established for the main purpose of generating returns for its investors by means of divestment of its subsidiaries or associated companies, evidenced in its annual report or other official documents;

“home Member State of the AIF” means:

• (a) the Member State in which the AIF is authorised or registered under applicable law, or in case of multiple authorisations or registrations, the MemberState in which the AIF has been authorised or registered for the first time, or

• (b) if the AIF is neither authorised nor registered in a Member State, the MemberState in which the AIF has its registered office or head office or both;

“home Member State of the AIFM” means the Member State in which the AIFM has its registered office; in the case of a non-EU AIFM, references in these Regulations to “home Member State of the AIFM” shall be read as references to the “Member State of reference”, as provided for in Chapter 8 of Part 3;

“host Member State of the AIFM” means any of the following:

• (a) a Member State, other than the home Member State, in which an EU AIFM manages EU alternative investment funds;

• (b) a Member State, other than the home Member State, in which an EU AIFM markets units or shares of an EU AIF;

• (c) a Member State, other than the home Member State, in which an EU AIFM markets units or shares of a non-EU AIF;

• (d) a Member State, other than the Member State of reference, in which a non-EU AIFM manages EU alternative investment funds;

• (e) a Member State, other than the Member State of reference, in which a non-EU AIFM markets units or shares of an EU AIF; or

• (f) a Member State, other than the Member State of reference, in which a non-EU AIFM markets units or shares of a non-EU AIF;

“initial capital” means funds as referred to in points (a) and (b) of the first paragraph of Article 57 of Directive 2006/48/EC;

“issuer” means an issuer within the meaning of point (d) of Article 2(1) of Directive 2004/109/EC where that issuer has its registered office in the Union, and where its shares are admitted to trading on a regulated market within the meaning of Regulation 3(1) of the European Communities (Markets in Financial Instruments) Regulations 2007 ( S.I. No. 60 of 2007 );

“legal representative” means a natural person domiciled in the European Union or a legal person with its registered office in the European Union, and who or which, expressly designated by a non-EU AIFM, acts on behalf of such non-EU AIFM vis--vis the authorities, clients, bodies and counterparties to the non-EU AIFM in the European Union with regard to the non-EU AIFM’s obligations under these Regulations;

“leverage” means any method by which the AIFM increases the exposure of an AIF it manages whether through borrowing of cash or securities, or leverage embedded in derivative positions or by any other means;

“managing one or more than one alternative investment fund” means performing at least investment management functions referred to in paragraph1(a) or (b) of Schedule 1 for one or more than one such fund;

“marketing” means a direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled or with a registered office in the European Union;

“master alternative investment fund” or “master AIF” means an AIF in which another AIF invests or has an exposure in accordance with the definition of “feeder alternative investment fund” in this paragraph;

“Member State of reference” means the Member State determined in accordance with Article 37(4) of the Directive;

“non-EU alternative investment fund” or “non-EU AIF” means an AIF which is not an EU AIF;

“non-EU alternative investment fund manager” or “non-EU AIFM” means an AIFM which is not an EU AIFM;

“non-listed company” means a company which has its registered office in the European Union and the shares of which are not admitted to trading on a regulated market within the meaning of Regulation 3(1) of the European Communities (Markets in Financial Instruments) Regulations 2007 ( S.I. No. 60 of 2007 );

“own funds” means own funds as referred to in Articles 56 to 67 of Directive 2006/48/EC;

“parent undertaking” means an undertaking that has one or more subsidiary undertakings;

“prime broker” means a credit institution, a regulated investment firm or another entity subject to prudential regulation and ongoing supervision, offering services to professional investors primarily to finance or execute transactions in financial instruments as counterparty and which may also provide other services such as clearing and settlement of trades, custodial services, securities lending, customised technology and operational support facilities;

“professional investor” means an investor who is considered to be a professional client or may, on request, be treated as a professional client within the meaning of Annex II to Directive 2004/39/EC

“qualifying holding” means a direct or indirect holding in an AIFM which represents 10 per cent or more of the capital or of the voting rights, in accordance with Articles 9 and 10 of Directive 2004/109/EC, taking into account the conditions regarding aggregation of the holding laid down in Article 12(4) and (5) thereof or which makes it possible to exercise a significant influence over the management of the AIFM in which that holding subsists;

“retail investor” means an investor who is not a professional investor;

“subsidiary” means a subsidiary undertaking as defined in Regulation 4(1) of the European Communities (Companies: Group Accounts) Regulations 1992 ( S.I. No. 201 of 1992 );

“supervisory authorities”, in relation to a non-EU AIF, means the national authorities of a third country which are empowered by law or regulation to supervise the AIF;

“supervisory authorities”, in relation to a non-EU AIFM, means the national authorities of a third country which are empowered by law or regulation to supervise the AIFM;

“securitisation special purpose entities” means entities whose sole purpose is to carry on a securitisation or securitisations within the meaning of Article 1(2) of Regulation (EC) No. 24/2009 of the European Bank of 19 December 2008 concerning statistics on the assets and liabilities of financial vehicle corporations engaged in securitisation transactions³ and other activities which are appropriate to accomplish that purpose;

“UCITS” means an undertaking for collective investment in transferable securities authorised in accordance with Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).

• (2) For the purposes of the definition of “own funds” in paragraph (1), Regulations 11 to 14 of the European Communities (Capital Adequacy of Investments Firms) Regulations 2006 shall apply with the necessary modifications.

• (3) A word or expression that is used in these Regulations and is also used in the Directive has, unless the contrary intention appears, the meaning in these Regulations that it has in the Directive.

Determination of the AIFM.

1. (1) Each AIF managed within the scope of these Regulations shall have a single AIFM, which AIFM shall be responsible for ensuring that these Regulations are complied with.

2. (2) The AIFM shall be either—

   • (a) an external manager, which is the legal person appointed by the AIF or on behalf of the AIF and which, through that appointment, is responsible for managing the AIF (“external AIFM”); or

   • (b) where the legal form of the AIF permits an internal management and where the AIF’s governing body chooses not to appoint an external AIFM, the AIF itself, which shall then be authorised as the AIFM.

3. (3) In a case where an external AIFM is unable to ensure compliance with requirements of these Regulations for which an AIF or another entity on its behalf is responsible, it shall immediately notify the Bank, and, if applicable, the competent authorities of the EU AIF concerned, of that fact. The Bank shall require the AIFM to take the necessary steps to remedy the situation.

(4).If, notwithstanding the steps referred to in paragraph (3) being taken, the non-compliance continues, and the case is one that relates to an Irish AIFM managing an AIF or a non-EU AIFM (being an AIFM whose Member State of reference is the State) managing an EU AIF, the Bank shall require that the AIFM resign as AIFM of the AIF concerned and the AIFM shall comply with that requirement. In such a case the AIF shall no longer be marketed in the European Union. If the case is one that relates to a non-EU AIFM (being an AIFM whose Member State of reference is the State) managing a non-EU AIF, the AIF shall no longer be marketed in the European Union.

• (5) In either of the cases mentioned in paragraph (4), the Bank shall immediately give notice of the matter to the competent authorities of the host Member States of the AIFM.

PART 2 Authorisation of AIFMs

Conditions for taking up AIFM activities.

• (2) No external AIFM shall engage in activities other than those referred to in Schedule 1, but subject to its being authorised as a UCITS management company under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, it may also manage UCITS.

• (3) No internally managed AIF shall engage in activities other than the internal management of that AIF in accordance with Schedule 1.

• (4) Without prejudice to paragraph (2), an external AIFM may provide the following services:

• (a) management of portfolios of investments, including those owned by pension funds and institutions for occupational retirement provision in accordance with Article 19(1) of Directive 2003/41/EC, in accordance with mandates given by investors on a discretionary, client-by-client basis;

• (b) non-core services comprising:

• (i) investment advice;

• (ii) safe-keeping and administration in relation to shares or units of collective investment undertakings;

• (iii) reception and transmission of orders in relation to financial instruments.

• (5) An AIFM shall not be authorised under these Regulations to provide:

• (a) only the services referred to in paragraph (4),

• (b) non-core services referred to in paragraph (4)(b) without also providing the services referred to in paragraph (4)(a),

• (c) only the activities referred to in paragraph 2 of Schedule 1; or

• (d) the services referred to in paragraph1(a) of Schedule 1 without also providing the services referred to in paragraph1(b) of that Schedule or vice versa.

• (6) Regulations 5(2), 32, 33 and 76 of the European Communities (Markets in Financial Instruments) Regulations 2007 ( S.I. No. 60 of 2007 ) shall apply to the provision of the services referred to in paragraph (4) by an AIFM.

• (7) An AIFM shall provide the Bank with the information the Bank requires to monitor compliance with the conditions referred to in these Regulations.

• (8) Neither an investment firm authorised under Directive 2004/39/EC nor a credit institution authorised under Directive 2006/48/EC shall be required to obtain an authorisation under these Regulations in order to provide investment services such as individual portfolio management in respect of alternative investment funds. However, an investment firm shall, directly or indirectly, offer units or shares of alternative investment funds to, or place such units or shares with, investors in the State, only to the extent the units or shares can be marketed in accordance with these Regulations.

Application for authorisation.

• (2) An AIFM that applies for such an authorisation shall provide to the Bank the following information relating to it:

• (a) information on the persons effectively conducting the business of the AIFM;

• (b) information on the identities of the AIFM’s shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings and on the amounts of those holdings;

• (c) a programme of activity setting out the organisational structure of the AIFM, including information on how the AIFM intends to comply with its obligations under these Regulations;

• (d) information on the remuneration policies and practices pursuant to Regulation 14;

• (e) information on arrangements made for the delegation and sub-delegation to third parties of functions as referred to in Regulation 21.

• (3) An AIFM that applies for such an authorisation shall provide to the Bank the following information in relation to each AIF it intends to manage:

• (a) information concerning the investment strategies including the types of underlying funds if the AIF is a fund of funds, and the AIFM’s policy as regards the use of leverage, and the risk profiles and other characteristics of each AIF it manages or intends to manage, including information about the Member States or third countries in which each AIF is established or is expected to be established;

• (b) information on where the master AIF is established if the AIF is a feeder AIF;

• (c) the rules or instruments of incorporation of each AIF the AIFM intends to manage;

• (d) information on the arrangements made for the appointment of the depositary in accordance with Regulation 22 for each AIF the AIFM intends to manage;

• (e) any additional information referred to in Regulation 24(1) for each AIF the AIFM manages or intends to manage.

• (4) Where a management company is authorised pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 ( S.I. No. 352 of 2011 ) and applies for authorisation as an AIFM under these Regulations, the Bank shall not require the UCITS management company to provide information or documents which the UCITS management company already provided when applying for authorisation under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, provided that such information or documents remain up-to-date.

• (5) In each year, the Bank shall, on a quarterly basis, notify ESMA of authorisations granted or withdrawn in accordance with this Part.

Conditions for granting authorisation.

• (i) it is satisfied that the AIFM will be able to meet the conditions of these Regulations;

• (ii) the AIFM has sufficient initial capital and own funds in accordance with Regulation 10;

• (iii) the persons who effectively conduct the business of the AIFM are of sufficiently good repute and are sufficiently experienced also in relation to the investment strategies pursued by each AIF managed by the AIFM, the names of those persons and of every person succeeding them in office being communicated forthwith to the Bank and the conduct of the business of the AIFM being decided by at least two persons meeting suchconditions;

• (iv) the shareholders or members of the AIFM who have qualifying holdings are suitable taking into account the need to ensure the sound and prudent management of the AIFM; and

• (v) the head office and the registered office of the AIFM are located in the State.

• (b) Without prejudice to its powers to impose conditions or requirements otherwise under these Regulations or any other enactment, the Bank may attach such conditions to an authorisation as it considers appropriate.

• (c) Without prejudice to subparagraph (b), the Bank may, if it thinks fit, attach to an authorisation, subsequent to the grant thereof, such one or more conditions as it considers appropriate.

• (d) The Bank may alter or revoke conditions attached to an authorisation under subparagraph (b) or (c).

• (2) The Bank shall consult the relevant competent authorities of other Member States before it grants an authorisation to any of the following:

• (a) a subsidiary of another AIFM, of a UCITS management company, of an investment firm, of a credit institution or of an insurance undertaking authorised in another Member State;

• (b) a subsidiary of the parent undertaking of another AIFM, of a UCITS management company, of an investment firm, of a credit institution or of an insurance undertaking authorised in another Member State; and

• (c) a company controlled by the same natural or legal persons as those that control another AIFM, a UCITS management company, an investment firm, a credit institution or an insurance undertaking authorised in another Member State.

• (3) The Bank shall refuse to grant an authorisation to an AIFM where the effective exercise of the Bank’s supervisory functions would be prevented by any of the following:

• (a) close links between the AIFM and other natural or legal persons;

• (b) the laws, regulations or administrative provisions of a third country governing natural or legal persons with which the AIFM has close links;

• (c) difficulties involved in the enforcement of those laws, regulations and administrative provisions.

• (4) Without prejudice to other powers to attach conditions to an authorisation, the Bank may attach a condition to an authorisation restricting the authorisation’s scope in such manner as it sees fit, in particular as regards the investment strategies of each AIF the AIFM is allowed to manage.

• (5) The Bank shall inform, in writing, the applicant for the grant of an authorisation within 3 months after the date of submission to it by the applicant of a complete application, whether or not the authorisation has been granted.

• (6) The Bank may extend, by up to 3 additional months, the period referred to in paragraph (5) where it considers it necessary to do so because of the specific circumstances of the case and after having notified the AIFM accordingly.

• (7) For the purpose of paragraph (5) an application shall be deemed to be complete if the AIFM has at least submitted the information referred to in Regulation 8 (2)(a) to (d) and Regulation 8(3)(a) and (b).

• (8) An AIFM may start managing alternative investment funds with investment strategies described in the application in accordance with Regulation 8(3)(a) in the State as soon as the authorisation is granted, but not earlier than 1 month after having submitted any missing information referred to in Regulation 8(2)(e) and Regulation 8(3)(c) to (e).

Initial capital and own funds.

• (2) Where an AIFM is appointed as external manager of alternative investment funds, the AIFM shall have an initial capital of at least €125,000.

• (3) Where the value of the portfolios of the alternative investment funds managed by the AIFM exceeds €250,000,000, the AIFM shall provide an additional amount of own funds. That additional amount of own funds shall be equal to 0.02 per cent of the amount by which the value of the portfolios of the AIFM exceeds €250,000,000 but the required total of the initial capital and the additional amount shall not, however, exceed €10,000,000.

• (4) For the purpose of paragraph (3), alternative investment funds managed by the AIFM, including such funds for which the AIFM has delegated functions in accordance with Regulation 20 but excluding AIF portfolios that the AIFM is managing under delegation, shall be deemed to be the portfolios of theAIFM.

• (5) Irrespective of paragraph (3), the own funds of the AIFM shall never be less than the amount required under Article 21 of Directive 2006/49/EC.

• (6) The Bank may, to the following extent and subject to the following condition, relieve an AIFM from the requirement to comply with paragraph (3), namely by permitting it not to provide up to 50 per cent of the additional amount of own funds referred to in that paragraph on condition that it benefits from a guarantee of the same amount given by—

• (a) a credit institution or an insurance undertaking which has its registered office in a Member State, or

• (b) a credit institution or an insurance undertaking in a third country in which the institution or undertaking is subject to prudential rules considered by the Bank as equivalent to those laid down in European Union law.

• (7) To cover potential professional liability risks resulting from activities an AIFM may carry out pursuant to these Regulations, an internally managed AIF and an external AIFM shall either:

• (a) have additional own funds which are appropriate to cover potential liability risks arising from professional negligence; or

• (b) hold a professional indemnity insurance against liability arising from professional negligence which is appropriate to the risks covered.

• (8) Own funds, including any additional own funds as referred to in paragraph (7)(a), shall be invested in liquid assets or assets readily convertible to cash in the short term and shall not include speculative positions.

• (9) This Regulation shall not apply to an AIFM which is also a UCITS management company with the exception of paragraphs (7) and (8).

Changes in the scope of the authorisation.

• (2) Where the Bank receives a notification under paragraph (1), the Bank may either—

• (a) decide to alter the conditions attached to the authorisation so as to take account of the changes proposed; or

• (b) decide that the changes proposed should not be proceeded with,

and, in either case, shall make its decision, and inform the AIFM of it, within 1 month after the receipt of the notification; where the decision is that under subparagraph (a), the Bank shall alter the conditions accordingly.

• (3) The Bank may extend, by up to one additional month, the period referred to in paragraph (2) where it considers it necessary to do so because of the specific circumstances of the case and after having notified the AIFM accordingly.

• (4) If the Bank fails to comply with paragraph (2) within the period referred to therein (or, as the case may be, that period as extended under paragraph (3)), the changes referred to in paragraph (1) may be carried into effect.

Withdrawal of the authorisation.

• (a) does not make use of the authorisation within 12 months after the date of its grant, expressly renounces the authorisation or has ceased the activity to which these Regulations apply for the preceding 6 months, unless the Bank has provided for the authorisation to lapse in such cases;

• (b) obtained the authorisation by making false statements or by any other irregular means;

• (c) no longer complies with one or more of the conditions attached to the authorisation;

• (d) no longer complies with Directive 2006/49/EC if its authorisation also covers the discretionary portfolio management service referred to in Regulation 7(4)(a); or

• (e) has contravened any of these Regulations and the contravention or contraventions is or are, in the opinion of the Bank, of a serious or systematic nature.

PART 3 Operating conditions for AIFMs

Chapter 1 General requirements

General principles.

• (a) act honestly, with due skill, care and diligence and fairly in conducting its activities;

• (b) act in the best interests of each AIF or the investors of each AIF it manages and the integrity of the market;

• (c) have and employ effectively the resources and procedures that are necessary for the proper performance of its business activities;

• (d) take all reasonable steps to avoid conflicts of interest and, when they cannot be of interest in order to prevent them from adversely affecting the interests of each AIF and its investors and to ensure that each AIF it manages is fairly treated;

• (e) comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of each AIF or the investors of each AIF it manages and the integrity of the market;

• (f) treat all AIF investors fairly.

No investor in an AIF shall obtain preferential treatment, unless such preferential treatment is disclosed in the relevant AIF’s rules or instruments of incorporation.

• (2) Each AIFM which is also authorised to provide the service of discretionary portfolio management referred to in Regulation 7(4)(a) shall:

• (a) not invest all or part of a client’s portfolio in units or shares of any AIF it manages, unless it receives prior general approval from the client;

• (b) with regard to the services referred to in Regulation 7(4) be subject to Directive 97/9/EC of the European Parliament and of the Council of3March 1997 on investor-compensation schemes.

Remuneration.

• (2) The staff referred to in paragraph (1) are staff of the AIFM, including senior management, risk-takers, control functions, and any employees receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers, whose professional activities have a material impact on the risk profiles of the AIFM or of any AIF it manages.

• (3) An AIFM shall determine the remuneration policies and practices in accordance with Schedule 2.

Conflicts of interest.

• (a) the AIFM, including its managers, employees or any person directly or indirectly linked to the AIFM by control, and the AIF managed by the AIFM or the investors in that AIF;

• (b) the AIF or the investors in that AIF, and another AIF or the investors in that AIF;

• (c) the AIF or the investors in that AIF, and another client of the AIFM;

• (d) the AIF or the investors in that AIF, and a UCITS managed by the AIFM or the investors in that UCITS; or

• (e) two clients of the AIFM.

• (2) An AIFM shall maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to identify, prevent, manage and monitor conflicts of interest in order to prevent them from adversely affecting the interests of each AIF and its investors.

• (3) An AIFM shall segregate, within its own operating environment, tasks and responsibilities which may be regarded as incompatible with each other or which may potentially generate systematic conflicts of interest. An AIFM shall assess whether its operating conditions may involve any other material conflicts of interest and disclose them to the investors of each AIF.

• (4) Where organisational arrangements made by the AIFM to identify, prevent, manage and monitor conflicts of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to investors’ interests will be prevented, the AIFM shall clearly disclose the general nature or sources of conflicts of interest to the investors before undertaking business on their behalf, and develop appropriate policies and procedures.

• (5) Where the AIFM on behalf of an AIF uses the services of a prime broker, the terms shall be set out in a written contract. In particular any possibility of transfer and reuse of AIF assets shall be provided for in that contract and shall comply with the AIF rules or instruments of incorporation. The contract shall provide that the depositary be informed of the contract.

• (6) An AIFM shall exercise due skill, care and diligence in the selection and appointment of prime brokers with whom a contract is to be concluded.

Risk management.

• (2) The functional and hierarchical separation of the functions of risk management in accordance with the paragraph (1) shall be reviewed by the Bank in accordance with the principle of proportionality.

• (3) For the purposes of a review under paragraph (2), the AIFM shall, in any event, be able to satisfy the Bank that specific safeguards against conflicts of interest allow for the independent performance of risk management activities and that the risk management process satisfies the requirements of this Regulation and is consistently effective.

• (4) An AIFM shall implement adequate risk management systems in order to identify, measure, manage and monitor appropriately all risks relevant to each AIF investment strategy and to which each AIF is or may be exposed.

• (5) An AIFM shall review the risk management systems with appropriate frequency at least once a year and adapt them whenever necessary.

• (6) An AIFM shall at least—

• (a) implement an appropriate, documented and regularly updated due diligence process when investing on behalf of the AIF, according to the investment strategy, the objectives and risk profile of the AIF;

• (b) ensure that the risks associated with each investment position of the AIF and their overall effect on the AIF’s portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedures;

• (c) ensure that the risk profile of the AIF shall correspond to the size, portfolio structure and investment strategies and objectives of the AIF as laid down in the AIF rules or instruments of incorporation, prospectus and offering documents.

Supplemental provision in relation to Regulation 16.

• (a) the type of the AIF;

• (b) the investment strategy of the AIF;

• (c) the sources of leverage of the AIF;

• (d) any other inter-linkage or relevant relationships with other financial services institutions, which could pose systemic risk;

• (e) the need to limit the exposure to any single counterparty;

• (f) the extent to which the leverage is collateralised;

• (g) the asset-liability ratio;

• (h) the scale, nature and extent of the activity of the AIFM on the markets concerned.

Liquidity management.

• (2) An AIFM shall regularly conduct stress tests, under normal and exceptional liquidity conditions, which enable it to assess the liquidity risk of each AIF and monitor the liquidity risk of each AIF accordingly.

• (3) An AIFM shall ensure that, for each AIF that it manages, the investment strategy, the liquidity profile and the redemption policy are consistent.

Chapter 2 Organisational Requirements

General principles.

• (2) In particular, the Bank, having regard also to the nature of each AIF managed by the AIFM, shall require that the AIFM has sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and adequate internal control mechanisms including, in particular, rules for personal transactions by its employees or for the holding or management of investments in order to invest on its own account and ensuring, at least, that each transaction involving each AIF may be reconstructed according to its origin, the parties to it, its nature, and the time and place at which it was effected and that the assets of each AIF managed by the AIFM are invested in accordance with the AIF rules or instruments of incorporation and the legal provisions in force.

Valuation.

• (2) The AIF rules or instruments of incorporation shall set out the rules applicable to the valuation of assets and the calculation of the net asset value per unit or share of the AIF.

• (3) An AIFM shall also ensure that the net asset value per unit or share of each AIF is calculated and disclosed to the investors in accordance with this Regulation and the AIF rules or instruments of incorporation.

• (4) The valuation procedures used shall ensure that the assets are valued and the net asset value per unit or share is calculated at least once a year.

• (5) If the AIF is of the open-ended type, such valuations and calculations shall also be carried out at a frequency which is both appropriate to the assets held by the AIF and its issuance and redemption frequency.

• (6) If the AIF is of the closed-ended type, such valuations and calculations shall also be carried out in case of an increase or decrease of the capital by the relevant AIF.

• (7) The investors shall be informed of the valuations and calculations as set out in the relevant AIF rules or instruments of incorporation.

• (8) An AIFM shall ensure that the valuation function is either performed by:

• (a) an external valuer, being a legal or natural person independent from the AIF, the AIFM and any other persons with close links to the AIF or the AIFM; or

• (b) the AIFM itself, provided that the valuation task is functionally independent from the portfolio management and the remuneration policy and other measures ensure that conflicts of interest are mitigated and that undue influence upon the employees isprevented.

• (9) The depositary appointed for an AIF shall not be appointed as external valuer of that AIF, unless it has functionally and hierarchically separated the performance of its depositary functions from its tasks as external valuer and the potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the AIF.

• (10) Where an external valuer performs the valuation function, the AIFM shall demonstratethat:

• (a) the external valuer is subject to mandatory professional registration recognised by law or to legal or regulatory provisions or rules of professional conduct;

• (b) the external valuer can provide sufficient professional guarantees to be able to perform effectively the relevant valuation function in accordance with paragraphs (1) to (3); and

• (c) the appointment of the external valuer complies with Regulation 21(1) and (2).

• (11) The appointed external valuer shall not delegate the valuation function to a thirdparty.

• (12) An AIFM shall notify the appointment of the external valuer to the Bank which may require that another external valuer be appointed instead, where the conditions specified in paragraph (5) are notmet.

• (13) The valuation shall be performed impartially and with all due skill, care and diligence.

• (14) Where the valuation function is not performed by an independent external valuer, the Bank may require the AIFM to have its valuation procedures or valuations (or both) verified by an external valuer or, where appropriate, by an auditor.

• (15) An AIFM shall be responsible for the proper valuation of AIF assets, the calculation of the net asset value and the publication of that net asset value. The AIFM’s liability towards the AIF and its investors shall not be affected by the fact that the AIFM has appointed an external valuer.

• (16) Notwithstanding paragraph (15) and irrespective of any contractual arrangements providing otherwise, the external valuer shall be liable to the AIFM for any losses suffered by the AIFM as a result of the external valuer’s negligence or intentional failure to perform its tasks.

Chapter 3 Delegation of AIFM Functions

Delegation.

• (a) the AIFM shall be able to justify its entire delegation structure to the Bank on objective reasons;

• (b) the delegate shall dispose of sufficient resources to perform the respective tasks and the persons who effectively conduct the business of the delegate shall be of sufficiently good repute and sufficiently experienced;

• (c) where the delegation concerns portfolio management or risk management, it shall be conferred only on undertakings which are authorised or registered for the purpose of asset management and subject to supervision or, where that condition cannot be met, only subject to prior approval by the Bank;

• (d) where the delegation concerns portfolio management or risk management and is conferred on a third-country undertaking, in addition to the requirements in paragraph (c), co-operation between the Bank and the supervisory authority of the undertaking shall be ensured;

• (e) the delegation shall not prevent the effectiveness of supervision of the AIFM, and, in particular, shall not prevent the AIFM from acting, or the AIF from being managed, in the best interests of its investors;

• (f) the AIFM shall be able to demonstrate that the delegate is qualified and capable of undertaking the functions in question, that it was selected with all due care and that the AIFM is in a position to monitor effectively at any time the delegated activity, to give at any time further instructions to the delegate and to withdraw the delegation with immediate effect when this is in the interest of investors.

The AIFM shall review the services provided by each delegate on an ongoing basis.

• (2) No delegation of portfolio management or risk management shall be conferred on:

• (a) the depositary or a delegate of the depositary; or

• (b) any other entity whose interests may conflict with those of the AIFM or the investors of the AIF, unless such entity has functionally and hierarchically separated the performance of its portfolio management or risk management tasks from its other potentially conflicting tasks, and the potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the AIF.

• (3) The AIFM’s liability towards the AIF and its investors shall not be affected by the fact that the AIFM has delegated functions to a third party, or by any further sub-delegation.

• (4) The AIFM shall not delegate its functions to the extent that, in essence, it can no longer be considered to be the manager of the AIF and to the extent that it becomes a letterbox entity.

• (5) The third party may sub-delegate any of the functions delegated to it provided that the following conditions are met:

• (a) the AIFM consented prior to the sub-delegation;

• (b) the AIFM notified the Bank before the sub-delegation arrangements become effective;

• (c) the conditions specified in paragraph (1), and for this purpose each reference in that paragraph to the “delegate” shall be read as a reference to the “sub-delegate”.

• (6) No sub-delegation of portfolio management or risk management shall be conferredon:

• (a) the depositary or a delegate of the depositary; or

• (b) any other entity whose interests may conflict with those of the AIFM or the investors of the AIF, unless such entity has functionally and hierarchically separated the performance of its portfolio management or risk management tasks from its other potentially conflicting tasks, and the potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the AIF.

The relevant delegate shall review the services provided by each sub-delegate on an ongoing basis.

• (7) Where the sub-delegate further delegates any of the functions delegated to it, the conditions set out in paragraph (5) shall apply with any necessary modifications.

Chapter 4 Depositary

Depositary.

• (2) The appointment of the depositary shall be evidenced by written contract. The contract shall, inter alia, govern the communication and exchange of information deemed necessary to allow the depositary to perform its functions for the AIF for which it has been appointed as depositary, as set out in these Regulations and in other relevant laws, regulations or administrative provisions.

(3)(a) The depositary shall be:

• (i) a credit institution having its registered office in the State or another Member State and authorised in accordance with Directive 2006/48/EC;

• (ii) an investment firm having its registered office in the State or another Member State subject to capital adequacy requirements in accordance with Article 20(1) of Directive 2006/49/EC including capital requirements for operational risks and authorised in accordance with Directive 2006/39/EC and which also provides the ancillary service of safe-keeping and administration of financial instruments for the account of clients in accordance with point (1) of Section B of Annex I to Directive 2004/39/EC; such investment firms shall in any case have own funds not less than the amount of initial capital referred to in Article 9 of Directive 2006/49/EC; or

• (iii) a company incorporated in the State which is authorised as an investment business firm under the Investment Intermediaries Act 1995 and—

• (I) is wholly owned by a credit institution, provided the liabilities of the company are guaranteed by the credit institution and the credit institution has a paid up share capital which is not less than the limits specified in Regulation 6(1) of the European Communities (Licensing and Supervision of Credit Institutions) Regulations 1992 or such other sum as the Bank may, from time to time, prescribe under that Regulation; or

• (II) is wholly owned by an institution in a third country which has a paid up share capital which is not less than the limits specified in Regulation 6(1) of the EC (Licensing and Supervision of Credit Institution) Regulations 1992 or such other sum as the Bank may, from time to time, prescribe under that Regulation.

• (iv) in the case of an AIF established in another Member State, an entity which that Member State has determined to be a depositary in accordance with Article 21(3) of the Directive;

• (v) for a non-EU AIF only, and without prejudice to paragraph (5)(c), the depositary may also be a credit institution or any other entity of the same nature as the entities referred to in clauses (i) and (ii), provided that the conditions in paragraph (6) are met.

• (b) In addition to what is provided for in subparagraph (a), the Bank may allow that in relation to an AIF which has no redemption rights exercisable during the period of 5 years from the date of the initial investments and which, in accordance with its core investment policy, generally does not invest in assets that must be held in custody in accordance with paragraph (8)(a) or generally invest in issuers or non-listed companies in order to potentially acquire control over such companies in accordance with Regulation 27, the depositary may be an entity which carries out depositary functions as part of its professional or business activities in respect of which such entity is subject to mandatory professional registration recognised by law or to legal or regulatory provisions or rules of professional conduct and which can provide sufficient financial and professional guarantees to enable it to perform effectively the relevant depositary functions and meet the commitments inherent in those functions.

• (4) In order to avoid conflicts of interest between the depositary and the AIFM and the AIF (or between the depositary and either of the latter) or between the depositary and the AIF and its investors (or between the depositary and either of the latter):

• (a) an AIFM shall not act as depositary;

• (b) a prime broker acting as counterparty to an AIF shall not act as depositary for that AIF, unless it has functionally and hierarchically separated the performance of its depositary functions from its tasks as prime broker and the potential conflicts of interest are properly identified, managed, monitored and disclosed to the investors of the AIF;

• (c) a depositary may delegate its custody tasks to a prime broker referred to in subparagraph (b) in accordance with paragraph (11) if the relevant conditions are met.

• (5) The depositary shall be established in one of the following locations:

• (a) for an Irish AIF, in the State;

• (b) for an EU AIF, in the home Member State of the AIF;

• (c) for a non-EU AIF, in the third country where the AIF is established or in the home Member State of the AIFM managing the AIF or in the Member State of reference of the AIFM managing the AIF.

• (6) Without prejudice to the requirements set out in paragraph (3), the appointment of a depositary established in a third country shall, at all times, be subject to the followingconditions:

(a)(i) where a non-EU AIF is managed by either an Irish AIFM or a non-EU AIFM whose Member State of reference is the State, the competent authorities of the Member States in which the units or shares of the non-EU AIF are intended to be marketed and the Bank have signed cooperation and exchange of information arrangements with the competent authorities of the depositary; or

• (ii) where a non-EU AIF is managed by an AIFM which does not fall within the scope of clause (i) and the units or shares of a non-EU AIF are intended to be marketed in the State, the Bank and the competent authorities of the home Member State of the AIFM have signed cooperation and exchange of information arrangements with the competent authorities of the depositary;

• (b) the depositary is subject to effective prudential regulation, including minimum capital requirements, and supervision which have the same effect as European Union law and are effectively enforced;

• (c) the third country where the depositary is established is not listed as a Non-Cooperative Country and Territory by FATF;

(d)(i) where a non-EU AIF is managed by either an Irish AIFM or a non-EU AIFM whose Member State of reference is the State, the competent authorities of the Member States in which the units or shares of the non-EU AIF are intended to be marketed and the Bank have signed an agreement with the third country where the depositary is established which complies with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and ensures an effective exchange of information in tax matters including any multilateral tax agreements; or

• (ii) where the units or shares of a non-EU AIF are intended to be marketed in the State, the Bank and the competent authorities of the home Member State of the AIFM, have signed an agreement with the third country where the depositary is established which fully complies with the standards laid down in Article 26 of the OECD Model Tax Convention on Income and on Capital and ensures an effective exchange of information in tax matters including any multilateral tax agreements;

• (e) the depositary shall by contract be liable to the AIF or to the investors of the AIF, consistently with paragraphs (12) and (13), and shall expressly agree to comply with paragraph (11).

Where a competent authority of another Member State and the Bank disagree with the assessment made on the application of subparagraph (a), (c) or (e), the Bank and the other competent authority may refer the matter to the ESMA to act in accordance with the powers conferred on it under Article 19 of Regulation (EU) No. 1095/2010.

(7)(a) The depositary shall in general ensure that the AIF’s cash flows are properly monitored, and shall in particular ensure that all payments made by or on behalf of investors upon the subscription of units or shares of an AIF have been received and that all cash of the AIF has been booked in cash accounts opened in the name of the AIF or in the name of the AIFM acting on behalf of the AIF or in the name of the depositary acting on behalf of the AIF at an entity referred to in points (a), (b) and (c) of Article 18(1) of Directive 2006/73/EC, or another entity of the same nature, in the relevant market where cash accounts are required provided that such entity is subject to effective prudential regulation and supervision which have the same effect as European Union law and are effectively enforced and in accordance with the principles set out in Article 16 of Directive 2006/73/EC.