Minister for Trade and Commerce, Michael Ahern publishes
Investment Funds, Companies and Miscellaneous Provisions Bill 2005
Minister for Trade and Commerce, Mr. Michael Ahern TD today (Thursday March 31st 2005) announced the publication of the Investment Funds, Companies and Miscellaneous Provisions Bill 2005.
The Bill makes a number of changes to the existing law on investment funds. In particular, it provides for a new investment vehicle – the non-UCITS Common Contractual Fund (CCF) and will also provide for cross investment and segregated liability for investment funds. A number of other changes to general company law are also proposed to remove existing anomalies and pave the way for smooth transposition of certain EU Directives. In addition, some minor amendments to Consumer Law are proposed mostly to increase the level of maximum fines that can be imposed on parties found guilty of breaches of specific consumer legislation.
The Minister said the objective of the investment fund provisions is to give the greatest flexibility to the funds industry while at the same time keeping appropriate controls in place. “We know the industry is anxious to have a portfolio of fund vehicles available which is as broad as possible to improve further our attractiveness as an international location for the establishment of investment fund companies” said the Minister. “As with all of the other legislation governing collective investment schemes, the Central Bank and Financial Services Authority will exercise regulatory control over the Funds Industry for the new non-UCITS CCF. Furthermore, measures to clarify the tax treatment of the new vehicle have been included in this year’s Finance Bill”, he added.
The Minister indicated that the Government would continue its support of the funds industry by responding in an appropriate way to the new challenges which are presented by this ever-changing global marketplace. “The Funds Industry is operating in a highly competitive environment and the Government will continue to give all the necessary support so that this industry can prosper, while at the same time offering its clients appropriate safeguards”, he added.
Note for Editors
The proposed legislation provides for:
(1) the introduction of a Non-UCITS contract fund structure i.e. the Common Contractual Fund (CCF) structure;
Common Contractual Funds
The legislation will provide the legislative framework for an Irish authorised and regulated investment fund structure which will allow for the pooling of assets by institutional investors. For example, many multinational companies operate pension schemes in a number of different jurisdictions for the benefit of employees in those jurisdictions. When these local pension funds are centralised/pooled a number of cost savings are achieved through economies of scale. These savings include a reduction of management fees, administration costs and custodian fees. In addition, the pooling of assets allows smaller individual funds to diversify their risk by using a larger number of investment managers than would be possible if they were to operate on a stand-alone basis.
The consolidated UCITS (Undertakings for Collective Investment in Transferable Securities) Regulations (S.I. 211 of 2003 as amended) provided the legislative framework for the establishment of the UCITS Common Contractual Fund, the UCITS CCF. However, UCITS structures by their very nature include inherent restrictions such as those related to investment policy, acceptable asset classes, borrowing restrictions etc. These restrictions limit the value of the UCITS CCF structure and highlight the need for a CCF beyond the UCITS structure to complete the product range.
(iii) Amendment of Companies Act 1990 to provide for segregated liability and cross investments for Investment Funds.
(a) Segregated liability
Ideally, an investor who invests in a particular sub-fund should be in the same position as if that sub-fund were itself a limited liability company. The investor should be subject only to investment risks and liabilities incurred in the pursuance of the investment strategy attributable to the sub-fund in which it has chosen to invest and should not be exposed to potential liability as a result of activities in other sub-funds. Failure to implement segregated liability sub-funds would severely impact on Ireland’s competitive position. France and Luxembourg, two of the largest fund markets in the EU, have already introduced amendments to their legislation to provide for segregated liability for sub-funds. The changes will be achieved through amendment of Part XIII of the Companies Act 1990.
(b) Cross investment
The 1990 Act will also be amended to provide for cross investment by investment companies and the UCITS Regulations will be amended to provide for cross investment by investment companies established as UCITS. These amendments would facilitate investment by one sub-fund of an umbrella fund into another sub-fund of the same umbrella. This is currently permitted in investment funds which are structured as unit trusts but is not possible in investment companies because the legislation currently provides that shares which are purchased by an investment company must be cancelled. This means that an investment company cannot currently purchase shares in itself and hold these for the benefit of the investors in a particular sub-fund. The proposed amendments are aimed at removing this prohibition.
(c) Segregated liability and cross investment for UCITS
It is proposed to amend the UCITS Regulations to allow investment companies established as UCITS to operate segregated funds and engage in cross investment.
3. Amendment of the Companies Acts relating to Market Abuse / Insider Dealing
Part V of the Companies Act 1990 contains the national law relating to Insider Dealing. A new more comprehensive EU Directive covering Market Abuse (which deals with Insider Dealing and Market Manipulation) together with three associated Commission implementing Directives and one Commission Regulation must be implemented. It is proposed to transpose the bulk of the EU Instruments by way of Regulations made under the European Communities Act 1972, as amended, and in so doing to repeal Part V of the Companies Act 1990. However, it is considered desirable to retain certain elements of Part V, and introduce other enabling provisions, which need to be done by way of primary law, and this is what Part 4 of the Bill will deal with.
4. Amendment of the Companies Acts relating to Prospectuses for Listed Securities / Offers to the Public
In its first Report in December 2001, the Company Law Review Group recommended a number of changes to company law to remove anomalies and other provisions in the Companies Acts relating to offers of securities and debentures to the Public, arising from the interaction of provisions in the Companies Acts 1963, the European Communities (Stock Exchange) Regulations 1984 and the European Communities (Transferable Securities and Stock Exchange) Regulations 1992. There had also been a number of amending Regulations to transpose changes which had been adopted subsequent to the original EU Directives.
In the meantime, a new Prospectus Directive, dealing in an integrated way with offers of Listed Securities as well as direct offers to the public has been agreed and is due for transposition by July 2005. Work on the preparation of the necessary transposing Regulations has been initiated but it is already clear from the recommendations of the CLRG Report referred to above that certain elements of the existing law will need to be changed to facilitate the making of the Regulations. Part 5 of the Bill proposes the necessary amendments.
One of the main features of the proposals will be that offers of securities that are excluded from the Prospectus Directive will not be subject to national prospectus rules but they will be required to contain a clear warning that such offers are not prepared pursuant to the Prospectus Directive and have not been approved for issue by any regulatory authority.
5. Other Miscellaneous Amendments of the Companies Acts
A number of other necessary provisions and amendments to the Companies Acts are proposed. These arise from difficulties with the operation of existing provisions in the law, particularly in the CRO, and to facilitate operators using electronic technology. In addition, the proposed amendments address the need to rectify incomplete or incorrect cross references in provisions contained in the Companies (Auditing and Accounting) Act, 2003, which only came to light post enactment and when the relevant provisions were being considered for commencement.
6. Amendment of Consumer Legislation
Rather than enact separate amending Consumer legislation, it is proposed to avail of the opportunity to make some necessary amendments to Consumer law in the present Bill. In this regard, it is proposed to increase the level of maximum fines that can be imposed on conviction for breach of eight specific pieces of consumer protection legislation. The Department has acknowledged for some time now that the level of fines under certain pieces of consumer legislation was inadequate. The Director of Consumer Affairs has raised the issue on several occasions both directly with the Department and in the public arena both through her annual report and the media.
ENDS
TC 138
Last modified: 31/03/2005
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