26 March 2007
Since 14 February 2007 the Irish Financial Services Regulatory Authority has implemented a filing-only authorisation process for Irish qualifying investor funds. The aim of this change in the authorisation process is greater speed to market of a fully regulated product. This very welcome development follows the Irish government's initiative as set out in its strategy document for the international financial services industry in Ireland, 'Building on Success'.
Qualifying investor funds (QIFs) are non-UCITS (Undertakings for Collective Investment in Transferable Securities) collective investment schemes that may generally be invested in only by investors who meet a minimum high-net-worth test - individuals with a minimum net worth, excluding main residence and household goods, of €1.25m (£856,100); or institutions that own or invest on a discretionary basis at least €25m (£17.12m); or the beneficial owners of which are qualifying investors in their own right - and also make a minimum initial investment of at least €250,000 (£171,200).
The conditions and restrictions relating to investment objectives and policies and leverage that apply to retail funds are disapplied in respect of QIFs. QIFs may be established as open or closed-ended investment companies, unit trusts, common collective funds or investment limited partnerships.
The change to the current system of authorisation for QIFs will be that, subject to the promoter, directors and relevant service providers (primarily the investment manager, administrator and custodian) to a QIF having the appropriate authorisation/approval of the financial regulator, the QIF fund product itself will be capable of being authorised by the financial regulator on a filing-only basis. Applications must be filed no later than 3pm on the day before the proposed date of authorisation/approval and letters of authorisation/approval will be issued by close of business on the day of authorisation/approval.
This revised process will also apply to the addition of new sub-funds and to revised prospectuses/supplements for existing QIFs.
Before 14 February, the QIF product, principally the prospectus documentation, was reviewed in full by the financial regulator, including the investment objectives and policies, and investment borrowing and leverage restrictions.
The rationale behind the change to a filing-only system for a QIF fund is that, because the investment and leverage restrictions that would apply to retail funds are disapplied in the case of QIFs, then, subject to the directors and service providers to the QIF having all necessary approvals and the prospectus documentation containing all appropriate disclosures, including regarding the fund product itself and the risks involved in investment, 'qualifying investors' should be sufficiently sophisticated to appreciate the type of product in which they are investing without pre-review of the prospectus documentation by the financial regulator.
All of the normal requirements of the financial regulator in relation to a QIF, including the contents of the prospectus and the material contracts, still need to be adhered to. A revised detailed application form (which is easier to complete than its predecessor) must be completed by a director of the fund and certain confirmations provided by the custodian/ trustee and legal advisers.
The element that has been eliminated from the previous process is the detailed review by the financial regulator of the application form, the prospectus, supplements and the custodial/ trust documentation. The previous review process could take around eight weeks and typically involved at least two sets of submissions following comments from the financial regulator. Where share classes are being listed on the Irish Stock Exchange, the prospectus documentation will of course have to have been approved in advance by the exchange before the formal application for authorisation can be made to the financial regulator.
Because of the 48-hour rule, which requires all completion documents to be submitted to the Irish Stock Exchange not less than 48 hours before the shares are listed (and the financial regulator's authorisation/approval letter is one of the 48 hour documents), QIFs seeking a listing on the Irish Stock Exchange will not be able to trade on the day of, or after, the approval letter is received from the financial regulator. An extra couple of days will be needed to deal with seeding/listing. The Irish Stock Exchange's fund process has traditionally been much shorter than that of the financial regulator, so the Irish Stock Exchange approval process should not delay the process of getting the product to market in any significant way.
If fund promoters are seeking special derogations from the financial regulator's normal rules in relation to QIFs, obviously these will have to be applied for in advance and will have to be factored in to the applicant's timetable for authorisation of the fund product.
The financial regulator may conduct spot checks (post-authorisation) and, if it is of the view that the documentation has not been completed properly or the QIF is not in compliance with the financial regulator's requirements for QIFs, then the applicant/relevant service providers may have difficulty in being able to avail of the new process in the future.
QIFs are, and will continue to be, fully regulated collective investment schemes with all the attendant advantages, including that they will generally be exempted from Irish taxes.
This revised authorisation process is a very positive step - and indeed is the first major step on the road to enhancing the attractiveness of the QIF and other Irish funds products. It is consonant with the approach expressed by the regulator in its 'Strategic Plan for 2007 to 2009', published in November 2006. In it, the financial regulator commits to adopting a proportionate approach to regulation by striking a balance between the advantages of regulation and the constraints it imposes on financial services providers.
Over the coming months the Irish funds industry will be in further dialogue with the financial regulator with a view to achieving modifications and enhancements to QIFs and other Irish collective investment scheme products.
•Patricia Taylor is a consultant in the asset management and investment funds group at William Fry