{"id":12830,"date":"2022-08-10T19:27:25","date_gmt":"2022-08-10T19:27:25","guid":{"rendered":"http:\/\/legalblog.ie\/?p=12830"},"modified":"2024-02-17T10:52:18","modified_gmt":"2024-02-17T10:52:18","slug":"aif-rulebook-2014","status":"publish","type":"post","link":"https:\/\/legalblog.ie\/aif-rulebook-2014\/","title":{"rendered":"AIF Rulebook 2014"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_63 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/legalblog.ie\/aif-rulebook-2014\/#2014_Rulebook\" title=\"2014 Rulebook\">2014 Rulebook<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/legalblog.ie\/aif-rulebook-2014\/#Retail_AIFs\" title=\"Retail AIFs\">Retail AIFs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/legalblog.ie\/aif-rulebook-2014\/#Retail_AIF_Investments\" title=\"Retail AIF Investments\">Retail AIF Investments<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/legalblog.ie\/aif-rulebook-2014\/#AIF_Borrowing_Derivatives\" title=\"AIF Borrowing &amp; Derivatives\">AIF Borrowing &amp; Derivatives<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/legalblog.ie\/aif-rulebook-2014\/#Valuations\" title=\"Valuations\">Valuations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/legalblog.ie\/aif-rulebook-2014\/#Constitutional_Documents\" title=\"Constitutional Documents\">Constitutional Documents<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/legalblog.ie\/aif-rulebook-2014\/#Sub-Funds\" title=\"Sub-Funds\">Sub-Funds<\/a><\/li><\/ul><\/nav><\/div>\n<h3><span class=\"ez-toc-section\" id=\"2014_Rulebook\"><\/span>2014 Rulebook<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The rulebook published by the Central Bank in September 2014\u00a0 provides for requirements applicable generally to retail investor AIFs.\u00a0 There are specific requirements for particular types of funds relevant to the class of assets involved.<\/p>\n<p>There are extensive provisions dealing with qualified investor AIF requirements together with fund-specific requirements.\u00a0 There are general requirements in respect of AIF fund managers, AIF management companies, AIF administrators and AIF depository.<\/p>\n<p>The regulations distinguished between a category 1 fund, which refers to a range of funds established within the EU and certain other jurisdictions, and a category 2 investment fund, in relation to which an authorized investor fund has confirmed to the Central Bank that the investment funds apply to all requirements applicable to retail investor funds.\u00a0 This includes both funds authorized in the EU as well as certain other jurisdictions.<\/p>\n<p>Retail AIFs and qualifying investors AIFs may be established as unit trusts, designated investment companies, investment limited partners or common contractual funds. The conditions in relation to the AIF rulebook supersede requirements in previous non-UCITS notices.\u00a0 The requirements must be read together with the relevant legislation.<\/p>\n<p>The fund may not enter into a transaction with a management company, depository manager, or certain connected parties save where it is negotiated at arms&#8217; length and in the best interest of the unit holder.\u00a0 Transactions permitted are subject to certified valuation by a person approved by the depository, usually on the best terms or specific confirmation in the case of a transaction with the depository that conforms to the above principles.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Retail_AIFs\"><\/span>Retail AIFs<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The retail AIF will not appoint a management company a partner or manager which would acqire voting rights which enable it to exercise significant influence over an issuing body (investee company).\u00a0 This does not apply to investments in other investment funds and does not apply to venture capital development capital or private equity retail investor funds provided the prospectus indicates the intention regarding the exercise of legal and management control over underlying investments.<\/p>\n<p>A retail investor AIF shall not grant a loan or act as a guarantor on behalf of third parties. It shall not raise capital from the public through the issue of debt security.<\/p>\n<p>There are requirements as to the conditions on which it may track a gain and exposure to an index.\u00a0 In essence, it must be structured in a manner that is reasonable and advantageous.\u00a0 It must not be structured to circumvent the rules on retail investor AIFs.\u00a0 The retail investor AIF must ensure the calculation and performance fees are verified by the depository or other competent body for such a purpose.<\/p>\n<p>The retail AIF must specify the maximum annual fee charged by the management companies\/general partners.\u00a0 It may not be approved without a majority of the votes cast at a general meeting.\u00a0 Reasonable notice must be given to enable unit holders to redeem before the increase is implemented.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Retail_AIF_Investments\"><\/span>Retail AIF Investments<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>A retail AIF may derogate from investment restrictions for six month following launch subject to observing the principle of risk spreading. The limits of investment set out in the rules and in the prospectus shall apply at the time of purchase of investments and continue thereafter.\u00a0 If they are exceeded, this must be recorded and the remediation must be a priority.<\/p>\n<p>Retail AIFs must not invest more than 20 per cent of their net assets in securities that are not traded and are dealt with in a regulated market which is operated regularly and is recognized and open to the public.\u00a0 It may not invest more than 20 per cent of its net assets in securities issued by the same institution.<\/p>\n<p>Where the policy is to replicate an index, the limit may be increased to 35 percent in the case of a single issuer where it is justified by exceptional market conditions.\u00a0 Retail AIF may not hold 20 percent of any class of any security issued by any single issuer.\u00a0 This does not apply to investments in other open-ended investment funds.<\/p>\n<p>An AIF may only invest more than 20 percent and up to a 100 percent is net assets in transferrable securities issued and guaranteed by the state local authorities and public bodies of which one or more states are member states with the prior approval of the Central Bank.<\/p>\n<p>A retail AIF shall not keep on deposit more than 20 percent of net assets with any institution.\u00a0 This is increased to 30 per cent of net assets in respect of credit institutions authorised in the EU and certain other states a depository and, in certain other cases, other institutions with the approval of the Central Bank.<\/p>\n<p>It may only invest in open-ended investment funds, provided the underlying investment funds are regulated investment funds.\u00a0 It shall not invest more than 30 percent of its net assets in any one fund.\u00a0 If it invests more than 30 per cent of its net assets in other investment funds, it must ensure the funds in which the investor prohibits investing 30 per cent, more than 30 per cent of their assets and other funds.<\/p>\n<p>It may not invest more than 20 percent of net assets in unregulated open-ended investment funds.\u00a0 It may only invest in units of an investment fund managed by a management company or AIMF if its s management company or AIFF are associated or a related company where the investment fund in which the investment is being made has waived initial preliminary and redemption charges that would otherwise apply.\u00a0 It must ensure commissions or other fees received by the management company or AIMF are paid into the fund.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"AIF_Borrowing_Derivatives\"><\/span>AIF Borrowing &amp; Derivatives<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The fund may not have exposure to a counterparty in an over-the-counter derivate transaction which exceeds 10 per cent of its net assets or in any case where the counterparty is not a relevant institution.<\/p>\n<p>A retail AIF may only be permitted to borrow and secure such borrowing on its assets where this is permitted by its constitutional document.\u00a0 It shall not borrow or have borrowings more than 25 percent of its net assets of any time.\u00a0 It may not offset credit balances against borrowings for the purpose of determining the borrowings outstanding.<\/p>\n<p>Where a retail AIF engages in transactions in financial derivate instruments where the investment is hedged, it must comply with provisions relating to the calculation of global exposure.\u00a0 This also applies to rebook transactions where the additional leverage is generated through the reinvestment of collateral.<\/p>\n<p>A retail AIF may only engage in transactions in financial derivative instruments where they are dealt with in a market which is regulated, operating regularly, and recognized and open to the public in a member state or non-member state.<\/p>\n<p>There are also detailed conditions regarding the quality of the collateral, calculation of exposures on an ongoing basis, and calculations from exposures arising from margin obligations. \u00a0These must be calculated and reflected in the overall limitations under the funds.\u00a0 There are further specific provisions dealing with issues of concentration, risk management and reporting and the calculation of global exposures.\u00a0 There are requirements for ongoing calculation of global exposures<\/p>\n<p>A retail AIF shall not enter efficient portfolio management transactions which could result in a change to the declared investment policy or add supplementary risks in comparison to the general risks described in its constitutional documents.<\/p>\n<p>Repo contracts and securities lending may only be allowed in accordance with normal practice.\u00a0 There are requirements in respect of collateral for such arrangements.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Valuations\"><\/span>Valuations<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>There are provisions applicable to methods for calculating valuations. The accuracy of evaluating risk methodologies must be monitored.\u00a0 One must conduct backtesting to monitor the accuracy and performance of the methodology.<\/p>\n<p>It shall compare back testing, certain testing on an ongoing basis and certain other testing periodically, testing deals a number of over shootings.\u00a0 The methodology must be reviewed and adjusted.\u00a0 Particulars must be reported to the Central Bank in a quarterly basis.<\/p>\n<p>A retail AIF using value-at-risk methodology must have a rigorous, comprehensive risk, adequate testing program in accordance with qualitative and quantitative requirements which are set out.\u00a0 They are to be adequately integrated into the risk management process and are to be considered when making investment decisions.\u00a0 This shall cover all the risks that affect the valuation or the fluctuations in value of the retail AIF to any significant extent.<\/p>\n<p>There are provisions for the valuation of various classes of assets, including traded securities, investment funds, cash exchange, trade of derivative contracts, over the counter derivative contracts (in respect to which there are detailed requirements)<\/p>\n<p>The fund must, in this constitutional document, specify that notwithstanding the expected valuation methods, the valuation of a specific asset may be carried out under an alternative method that is deemed necessary and approved by the depository, and the rationale and methodologies are clearly demonstrated.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Constitutional_Documents\"><\/span>Constitutional Documents<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>A retail AIF must comply with its constitutional documents at all times.\u00a0 It must entrust its assets to a depository for safekeeping.\u00a0 It must prescribe the remuneration and expenditure which the management company or general partner are powered to charge.<\/p>\n<p>It must specify in its constitutional documents the maximum charges relating to the redemption and repurchase of units. It must specify the conditions for the creation and cancellation of units and withdrawal of contributions.\u00a0 It specifies the manner of application of income.<\/p>\n<p>It must set out the procedure to be followed for replacement of the manager.\u00a0Depositories may not be replaced without the consent of the Central Bank.<\/p>\n<p>The retail AIF may only issue bearer securities with the prior approval of the Central Bank.\u00a0 It must issue registered certificates where this is allowed by its constitutional documents.<\/p>\n<p>Where retail AIF must specify in its constitutional documents rules for valuation.\u00a0 They must define the expected method of valuation.<\/p>\n<p>The fund may only purchase or sell assets at prices which conform with the rules in its constitutional documents. It may only redeem or repurchase units by dividing the net asset value of the fund by the number of units.\u00a0 Such price may be decreased by duties and charges.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Sub-Funds\"><\/span>Sub-Funds<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>There are provisions in relation to conditions on which classes of shares may be created.\u00a0 They may only create one or more share classes or within the fund or subfunds subject to the conditions in the constitutional documents.\u00a0 Each subfund being a single common pool, the are assets not to be allocated to individual share classes.<\/p>\n<p>There are provisions for umbrella retail investment funds.\u00a0 It must get Central Bank approval for each subfund.\u00a0 Each subfund must comply with the requirements to which it is subject.<\/p>\n<p>The constitutional documents must provide the assets to be subfund shall belong exclusively to the relevantof fund and shall not be used directly or indirectly to discharge liability and claims of other funds.<\/p>\n<p>There are conditions for the establishment of subsidiaries and the making of investments through subsidiaries.\u00a0 Prior Central Bank approval is required.\u00a0 It must be wholly owned and controlled by the fund. The subsidiary must not be an issuing body on an investment fund.<\/p>\n<!--themify_builder_content-->\n<div id=\"themify_builder_content-12830\" data-postid=\"12830\" class=\"themify_builder_content themify_builder_content-12830 themify_builder tf_clear\">\n    <\/div>\n<!--\/themify_builder_content-->\n","protected":false},"excerpt":{"rendered":"<p>2014 Rulebook The rulebook published by the Central Bank in September 2014\u00a0 provides for requirements applicable generally to retail investor AIFs.\u00a0 There are specific requirements for particular types of funds relevant to the class of assets involved. There are extensive provisions dealing with qualified investor AIF requirements together with fund-specific requirements.\u00a0 There are general requirements [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[167],"tags":[],"_links":{"self":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/12830"}],"collection":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/comments?post=12830"}],"version-history":[{"count":5,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/12830\/revisions"}],"predecessor-version":[{"id":31916,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/posts\/12830\/revisions\/31916"}],"wp:attachment":[{"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/media?parent=12830"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/categories?post=12830"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/legalblog.ie\/wp-json\/wp\/v2\/tags?post=12830"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}