Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I am delighted to move the Second Stage in Seanad Éireann of the Irish Collective Asset-management Vehicles Bill 2014. At the outset I wish to acknowledge the all-party support that this Bill received in the other House, which has concluded its deliberations on the legislation. I look forward to the debate on the Bill in this House and hopefully the speedy enactment of what is important legislation in the context of future investment and jobs in this country.

The funds industry is a significant provider of high-quality jobs in Ireland, not just in Dublin, but across the country in places like Cork, Limerick and Dundalk, to name but three. The Irish funds industry has surpassed €2 trillion in total assets under administration. It is important that we do not stay still because this is an ever-changing industry. We need to build on that success to bring in more jobs and investment. The purpose of this Bill is to meet the commitment in the IFSC strategy to introduce a new framework for a corporate fund structure which is not a company in order to enhance Ireland's competitiveness as a funds jurisdiction. The new structure will not be subject to many of the requirements imposed on trading companies generally and so will be attractive to fund managers. Many of our competitor countries in Europe already have such vehicles and we must ensure that Ireland keeps pace with them.

Our intention is to provide a framework which will assist the Irish funds industry in reducing costs and increasing competitiveness. The proposed structure has a number of advantages for both fund managers and investors, including the simplification and streamlining of the requirements that Irish funds are currently subject to under company law while maintaining an appropriate level of regulatory oversight. It is similar to those mechanisms already in place in Luxembourg, France and the United Kingdom. It will be known as the Irish collective asset-management vehicle, or ICAV. The ICAV is a legal structure for the holding of investment schemes. The investment schemes are subject to a separate, unchanged body of rules for their prudential regulation. The main advantage is that the ICAV structure has been specifically designed to be distinguishable from a typical trading company. Most Irish funds are authorised as investment companies and, as such, are required to comply with many of the rules applicable to public companies which may not relevant or appropriate in the funds context. However, the ICAV is a bespoke corporate structure that will avoid the need for unnecessary compliance with certain company law requirements. This will result in reduced administrative obligations and associated costs.

Among other advantages, the ICAV differs from company structures in several important ways. First, an ICAV may, with the tacit agreement of the members and the auditor, dispense with annual general meetings, AGMs. This will result in administrative savings without a significant lessening in accountability for the board. AGMs simply are not as relevant in the context of an investment undertaking. Regulated collective investment schemes keep the investors far more up to date with the success or otherwise of the enterprise through daily net asset valuations and they are assured that the investment policies and corporate governance of the scheme are subject to the independent control of third party depositaries who are also closely regulated by the Central Bank. A great many investment schemes already operate as investment limited partnerships, unit trusts or common contractual funds without any requirement for general meetings. Of course, should the directors feel that an AGM is warranted for any reason they are free to call one. Second, ICAVs may make changes in their instruments of incorporation without shareholder consent if the depositary confirms that the interests of shareholders are not prejudiced. This reflects the process that already applies in the case of collective investment schemes constituted as unit trusts. Third, the Company Law Directives will not automatically apply to ICAVs and fourth, the ICAV should also be more practical from a US investor point of view in that it may be treated as a transparent entity for US tax purposes. I must stress that this does not have anything to do with tax avoidance; rather it will allow US investors bring forward their liability and avoid penalties and interest which could accrue in the case. Ireland's early agreement with the US to co-operate with its tax authorities on the implementation of the Foreign Account Tax Compliance Act, FATCA, is relevant here too.

The creation of an ICAV involves two stages, namely, registration and authorisation. The registration stage involves the Central Bank entering into a register of ICAVs the fledgling entity. At this stage an ICAV can do nothing but that which is necessary to apply for authorisation as a collective investment scheme. The latter stage involves approval for the ICAV under the undertakings for collective investment in transferable securities, UCITS, regulations or approval of the ICAV as an alternative investment fund, AIF.

The Central Bank already has exacting rules in place for the authorisation of a collective investment scheme by way of the UCITS regulations. These regulations are based on European rules which govern the establishment, marketing and operation of UCITS schemes. These schemes are primarily suitable for retail investors. Alternatively, an ICAV may be authorised in accordance with the process set out in chapter 2 of Part 2 as an alternative investment fund. Such funds are indirectly the subject of the alternative investment fund managers directive, AIFMD, which, though a managers directive, nevertheless sets the context for the regulation of professional investor funds. While the transposing UCITS regulations contain a discrete authorisation process, it is necessary to provide a similar mechanism for the authorisation of ICAVs that propose to operate as AIFs.

AIFs permit investment managers to market a regulated fund which can invest in a much broader range of assets and use investment strategies which would not be appropriate in a retail investor environment. In many ways the introduction of AIFMD, which brings to fund promoters a universally recognised brand to market and to investors the security of enhanced regulation of their funds, has driven the development of the ICAV. Ireland is the principal domicile worldwide for AIFs and the European marketing passport afforded by AIFMD only makes Ireland more attractive to alternative investment fund managers.

However, as I noted earlier, our competitor jurisdictions in Europe already have vehicles similar to the ICAV, and to maintain our competitiveness, we need to match and exceed their product offerings, hence the ICAV.

Part 4 concerns the appointment, removal and conduct of directors and to a large extent mirrors provisions in companies' legislation. These provisions help ensure the integrity of the ICAV and include a prohibition on the making of directors' loans. Directors will be under both the rules that apply to the directors of companies for which sanctions, including restriction or disqualification, apply as well as the Central Bank's rules on fitness and probity. In addition to various criminal sanctions provided for here and in the fund rules, directors will also be liable to the Central Bank's administrative sanctions regime for breaches of prudential rules.

Much of the rest of the Bill is concerned with the operation and end of life of an ICAV as well as ensuring that the supervisory rules and tools available to the Central Bank as the primary regulator and to the Office of the Director of Corporate Enforcement are up to the job and match those which already apply to funds which are incorporated under the Companies Acts. These parts were largely based on the Companies Act 2014 to ensure that where it is appropriate that the same rules would apply to an ICAV as apply to investment companies under the Companies Acts. This is achieved, for the most part, by the cross-application of the relevant provisions of the new Companies Act. That Act, in its final stages, was passing through the Houses of the Oireachtas simultaneously with this Bill and that gave rise to certain difficulties in drafting elements of this Bill. Until we had a settled text in the Act we could not have absolute certainty when cross-applying the provisions that the policies and even the textual references would hold. That in part explains why the ICAV Bill was the subject of substantial amendment on both Committee and Report Stages in the Dáil. These cross-applications are primarily done by providing the reader with instructions as to how to apply the relevant provisions of company law to the ICAV without directly amending company law. The main cross-applications include receivership and winding up of ICAVs, the restriction and disqualification of directors, and the relevant investigations, compliance and enforcement powers of the Central Bank and the ODCE when applying provisions based in the Companies Acts.

This not a simple Bill. It is technical, particularly the drafting of the cross-applied provisions, but that does not detract from what we hope to achieve. Our job here is to ensure that the proper safeguards are in place to allow very large sums of money to be placed securely in the hands of investment managers to allow them to make those investments grow and provide for retirements, college funds and savings. In return, we reap jobs and investment for Ireland.

It is important, therefore, to remember that we are applying tried and tested models for the operation of the ICAV; that the prudential rules that apply are European in origin and worldwide in reputation; and that the base on which the ICAV structure itself is built is Irish company law and the ICAV model itself has analogues across Europe and the world. With the passage of the Bill, which we are debating on Second Stage this evening, we in Ireland will not just be talking the talk in relation to competitiveness, we will be ensuring that the structures we have in place for investment funds match those of competitors while also ensuring that the safeguards are in place, that what needs to be regulated is regulated but bureaucracy as it applies to traditional companies, which is not relevant to investment funds, is not applied. Significant effort has been made over recent months and years to get the legislation right. I hope that by the passage of the legislation, this country can continue to maintain a reputation as a very competitive jurisdiction in which to place one's investment funds. That can only lead to more jobs and more investment for this country. I commend the ICAV Bill to the House.