Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I congratulate the Leas-Chathaoirleach on his recent appointment. I know he will do an excellent job in the Seanad for whatever great number of years we have ahead of us.I welcome the opportunity to address the Seanad today on the Investment Limited Partnerships (Amendment) Bill 2020. The Bill seeks to update the operation of the Investment Limited Partnerships Act, as outlined in the programme for Government. It is also set out in the Ireland for Finance strategy. Some will find this quite a technical Bill as it concerns the issue of investment limited partnerships, ILPs. I ask the House to bear with me as we go through it, because we have to give the Bill proper scrutiny and it is one that will require careful consideration.

An earlier version of elements of this Bill passed all Stages of Dáil Éireann, but lapsed with the dissolution of the House. It was intended that the Government would make additional amendments to enhance the transparency applied to Ireland's fund vehicles by extending anti-money laundering beneficial ownership requirements to both ILPs, and to common contractual funds, which are two of Ireland's five corporate entities for the establishment of investment funds.

The Bill now before the Seanad modernises investment limited partnerships and provides for best practice in the area of transparency and anti-money laundering. The Bill also makes a number of technical amendments to the Irish Collective Asset-management Vehicles Act 2015. It also provides that the Central Bank can verify personal public service number, PPSN, information pertaining to beneficial ownership registers that it operates by proposing an amendment to the Social Welfare Consolidation Act 2005.

As Senators will be aware, the Ireland for Finance strategy was launched last year to develop further the success of international financial services in Ireland. Ireland's success in attracting top-tier global financial services is set against an increasingly dynamic and competitive backdrop. The changes put forward today aim to enhance Ireland's offering and improve our robust and transparent regulatory environment for investment funds.

The Irish funds industry is a key part of the internationally traded financial services sector. In May 2020 there were 7,750 investment funds authorised and regulated by the Central Bank of Ireland. Some 16,000 people are employed directly and a similar number indirectly in the industry throughout the country. The industry generates substantial direct and indirect Exchequer receipts annually. There is an estimated €850 million per annum in direct Exchequer receipts.

Ireland's offering is overseen by a regulatory regime which is responsive to the needs of industry while at the same time ensuring the protection of the interests of investors. The intention of the Bill is to ensure that our corporate structures for investment funds are fit for purpose and maintain our strong global reputation as a jurisdiction to domicile investment funds.

Investment funds are established for the purposes of investing the pooled funds of investors in assets in accordance with investment objectives and investment policies that are agreed with investors. Investors in investment funds expect redemption of their investment in a fund in line with the fund prospectus, which would have been issued at the early stages.

An investment limited partnership is a regulated partnership structure that does not have a separate legal identity. An investment limited partnership is formed under the Investment Limited Partnership Act 1994 and is established once it is approved by the Central Bank of Ireland. It is constituted according to the partnership agreement entered into by one or more general partners, who manage the business of the partnership, and a number of limited partners, who are the investors in the fund. A general partner in an investment limited partnership has unlimited liability for the debts and obligations of the ILP, while a limited partner is not liable beyond the amount of the capital contribution. When compared with our other investment fund vehicles, ILPs have particular advantages for specialised investment schemes such as private equity or venture capital funds, which have a smaller number of professional investors, or more bespoke investment structures with different ways of splitting the gains and losses from the partnership.

In an ILP, the general partner is responsible for managing the business of the ILP and is ultimately liable for the debts and the obligations of that ILP. An ILP is subject to oversight by the Central Bank of Ireland, and will be subject to the rules for these investment funds.

The Investment Limited Partnerships Act has been place since 1994. It needs to be updated to fit the environment at which it is aimed and to take account of the changes that have been made in Europe via the alternative investment funds managers directive of 2018 which establishes the EU regulatory landscape for non-undertakings for collective investment in transferable securities, UCITS, investment funds.

The Bill makes changes such as allowing an advisory role in the management of the fund for limited partners without putting their limited liability at risk.The changes will enable Irish industry to compete for some of the global private equity market that has chosen other European or global locations to base such investment funds.

The EU anti-money laundering frameworks have introduced a requirement to introduce beneficial ownership registers for corporate and other legal entities that have separate legal personality such as limited companies or Irish collective asset management vehicles and trusts under the Unit Trusts Act 1990. The investment limited partnership, ILP, and the common contractual fund vehicles do not fall within the scope of EU anti-money laundering directives due to the fact they have no separate legal personality and are not trusts. This Bill, however, provides an opportunity to align transparency requirements that apply to other Irish investment fund vehicles such as Part 24 of the Companies Act 2014, Irish Collective Asset-management Vehicles Act 2015 and the Unit Trust Act 1990, and to ensure the highest international standards in the area of anti-money laundering are met across Irish fund vehicles. These amendments will enhance Ireland's reputation as a well regulated financial centre.

The Bill corrects technical and typographical errors in the Irish Collective Asset-management Vehicles Act 2015, and aligns it with other company legislation. The Irish collective asset-management vehicle, ICAV, is a legal structure for the holding of investment schemes established in accordance with the Act. The ICAV structure was specifically designed to be distinguishable from a trading company in terms of the instrument of incorporation and provided for an umbrella fund structure with specific accounting for subheads, or sub-funds, as they are technically known in the legislation.

A number of Irish company law provisions are often irrelevant or inappropriate to investment funds and can create unintended consequences where applied in the funds' context. The Bill includes measures to apply beneficial ownership requirements to all of Ireland's investment vehicles, including the common contractual fund vehicles. Part 5 of the Bill amends Schedule 5 of the Social Welfare Consolidation Act 2005 to list the registrars of beneficial ownership of investment limited partnerships, ICAVs, credit unions, unit trusts, and common contractual funds as specified bodies that are authorised to use the personal public service, PPS, number to verify beneficial ownership information provided to them.

I will outline some of the key features of the Bill, which contains five Parts. Part 1 is the standard preliminary and general section. Part 2 relates to ILP, Part 3 relates to ICAVs, Part 4 to common contractual funds and Part 5 amends the Social Welfare Consolidation Act.

Section 1 provides for the Short Title and commencement. Section 2 covers the collective citation and section 3 is a standard form for clarifying the Acts referred to in the Bill. A key improvement is that the Bill ensures that the same transparency, anti-money laundering, and counter-terrorist financing arrangements apply across all Irish fund vehicles in line with best international practice. A number of changes to ILP relate to alignment with EU and domestic funds legislation, for example, changing the term "custodian" to "depository". There are also some typographical corrections, correction of cross-references and the replacement of Companies Act 1963 with Companies Act 2014. I will address the key changes in more detail later.

Section 7 adds board participation in boards and committees related to an investment limited partnership to the white list, a list of activities which, if undertaken by a limited partner, will not be deemed to be taking part in the conduct of the business and so do not result in loss of limited liability for a limited partner. The white list concept is also common to limited partnership regimes in other jurisdictions.

Section 10 adds a new section 8(4B) to the Act of 1994 to allow the use of an alternative foreign name besides the Roman alphabet in the case of foreign investment limited partnerships.

Section 11 amends section 8 of the Act of 1994 by adding a new section 8A to give the Central Bank the power to refuse to authorise an investment limited partnership where the name, or alternative foreign name, of the ILP is deemed undesirable.

Section 13 amends section 11(1) of the Act of 1994. Section 11(1A) sets out the requirements for amending a partnership agreement. Section 11(1B) allows for alterations to the partnership agreement to be implemented under certain conditions. Section 11(1C) outlines what the majority of limited partners comprises.

Section 14 adds two new subsections to section 11 to the Act of 1994.Section 11(5) creates a statutory transfer of assets and liabilities on the admission or replacement of a general partner and section 11(6) sets out a similar provision on the withdrawal of a general partner.

Section 15 amends section 12(3) and (4) and deletes a restriction on the limited partner bearing the same name or part of a name as the investment limited partnership.

Section 19 inserts a new subsection 19A to the Act of 1994 setting out the meaning of majority of limited partners for different purposes, such as to rights or interests of a majority of the limited partners and to its use of simple majority. Section 20 replaces section 20 of the Act of 1994 and sets out how capital contributions by limited partners and liability of limited partners for partnership debts operate. Section 23 amends section 24(4) of the 1994 Act as it relates to permits to the investment limited partnership to purchase insurance for a general partner or auditor for indemnification against liability where the general partner or auditor is found not to be negligent or in default.

Section 27 also amends section 27 of the Act of 1994 by introducing beneficial ownership to investment limited partnerships and aligns with similar provisions that apply to companies established under the Companies Act or the ICAV Act as set out in Sl 110/2019, the European Union (Anti-Money Laundering: Beneficial Ownership Of Corporate Entities) Regulations 2019. Sections 28 and 29 amend section 28 of the 1994 Act to align the beneficial ownership requirements with SI 110/2019.

Section 30 amends section 29 of the Act of 1994 by deleting subsection (3) in order to remove the requirement for the bank to publish notice of revocation of authorisation inIris Oifigiúil. Section 35 clarifies in section 38(4) of the 1994 Act that the limited partner does not have unlimited liability for the debts of the partnership once the partnership is dissolved unless the limited partner purports to carry on the business of the partnership after dissolution. Section 36 amends section 39 of the Act of 1994 to ensure that limited partners who do not take any part in the conduct of the business of the partnership cannot be prosecuted for any offences committed in the management of the partnership.

Section 37 amends the Act of 1994 by adding section 42A after section 42. Section 42A seeks to align the ability of an investment limited partnership to indemnify against liability with those in the ICAV Act 2015 and the Companies Act 2014. This reflects the changes that were introduced under the alternative investment fund directive and enables the investment limited partnership to purchase liability insurance for any auditor or general partner of the investment limited partnership.

Section 38 amends section 45 of the Act of 1994 to provide for a cost recovery system in the context of the Central Bank's role in maintaining the beneficial ownership registers. Section 39 inserts a new sections 46 to 59 relating to beneficial ownership registers, including a central register and associated procedures obligations and aligns this with SI 110/2019.

Section 40 inserts a new Part VIII into the Act of 1994 covering the migration of investment limited partnerships into and out of Ireland, as well as their conditions of solvency. It also inserts three chapters. Chapter 1 allows for the migration into Ireland to become an investment limited partnership from another jurisdiction. Chapter 2 provides for the revocation of authorisation following migration out of the country. Chapter 3 covers the declaration of solvency of migrating partnerships.

Section 41 introduces the issue of an umbrella of sub-funds in investment limited partnerships. These sub-funds permit the establishment of a fund with several distinct sub-funds that are traded as individual investment funds but are not liable for the debts of the other sub-funds under the said umbrella. These funds will share general partners but are ring-fenced from each other in the event of insolvency.

Part 3 of the Bill deals with amendments to the ICAV Act. These amendments are technical in nature. I will highlight a number of the more substantive elements. Section 42 amends section 2 of the 2015 Act by adding a new definition of a "category 4 offence" to the definitions with the meaning given by section 60 so that a person guilty of a category 4 offence is liable, on summary conviction, to a class A fine for a fine not exceeding €5,000, which by definition would be a minor issue.

Section 46 ensures a contract entered into outside the viresof an ICAV is nevertheless enforceable. Section 50 clarifies the requirements for affixing or attesting the affixing of the seal. Section 51 will allow the ICAV to issue powers of attorney. Section 52 will amend section 77 of the 2015 Act and bring the Irish Collective Asset-management Vehicles Act into line with the Companies Act 2014 in permitting inter-group loans and transactions. Section 53 will allow for the ICAV to make an application to the court where certain legal proceedings are anticipated. Section 54 will insert new sections, 91A, 91B and 91C, regarding written resolutions, in line with the Companies Act 2014. Section 55 clarifies that where an investment company converts to an ICAV, the priority of pre-existing charges should remain unchanged. Section 57 will require that directors making a declaration of solvency declare they have formed an opinion and that the applicant company is able to pay its debts as they fall due.

Section 61 will provide for a cost recovery system for the Central Bank for maintaining the beneficial owner register. The costs will be fully borne by the organisation, not by the Central Bank or the public. Section 63 will insert a new section, 18A to 18U, to the 2005 Act introducing beneficial ownership to common contractual funds. Section 64 will provide for the following: a registrar of beneficial ownership of investment limited partnerships; a registrar of beneficial ownership of Irish collective asset-management vehicles, credit unions and unit trusts; and a registrar of beneficial ownership of common contractual funds, in the list of what is specified in Schedule 5 to the Act. This means these bodies will be able to receive and use PPS numbers to verify beneficial ownership information.

I hope this explains the background and underlines the benefits that will arise from the Bill. The Irish funds industry is, as I highlighted earlier, an important part of the international financial services sector based in Ireland. It is a significant employer and a sector that we hope will grow and deepen its links in the economy throughout Ireland. The Bill is a means of promoting investment and Ireland's competitiveness in international financial services, which is more acute in the wake of the economic impact caused by Covid-19. I look forward to hearing Senators' contributions and will be happy to provide any further clarifications they may need. I commend the Bill to the House.