Welcome Updates from the Central Bank to the QIAIF Pre-submission Process

PUBLISHED: 14th July 2022

On 1 July 2022, the Central Bank published revised guidance regarding the pre-submission requirements it has in place for certain Qualifying Investor Alternative Investment Funds (QIAIFs).

The Central Bank’s pre-submission process is now only required for proposed QIAIFs investing in Irish property assets or crypto assets.

QAIFs investing in all other asset classes can avail of the Central Bank’s 24-hour fast track approval process.  Other such asset classes include loan origination funds, funds without exposure to Irish property assets, life settlements funds, or funds with proposed high levels of leverage.

The revised guidance will also enhance the attractiveness of the Irish Investment Limited Partnership as a QIAIF fund structure and will be of significant interest to investment managers, particularly those in the private assets sector, marketing to European investors and wider global markets.

Background

The success of the QIAIF regime in Ireland has been reliant on its speed to market, which is thanks to the Central Bank’s 24-hour fast track approval process. 

In 2020, the Central Bank introduced a pre-submission process for certain types of QIAIFs that propose to hold uncommon asset types or have unusual features:

• funds with high levels of leverage
• loan origination funds
• real estate funds
• funds investing in life settlements

This resulted in longer launch timeframes for these types of  QIAIFs.  The revised guidance now significantly reduces and clarifies the QIAIF pre-submission requirements and provides some asset classes with the predictability and speed to market of the 24-hour fast-track process. By availing of the 24-hour fast-track process, new QIAIF products are approved by the Central Bank within 24 hours of submission of a complete application.  Apart from some limited exceptions, no prior regulatory review of those applications is required:  the Central Bank relies on the fund's legal advisers and the alternative investment fund manager (AIFM) to certify compliance with the relevant requirements.

However, the Central Bank has made it clear that it may update the list of QIAIFs which are required to make a pre-submission to the Central Bank in the future.

Funds with Exposure to Irish Property

For funds investing in Irish property assets, the revised guidance provides a useful overview of the information that must be included in the pre-submission:

• Copies of the offering documents.
• Completed model portfolio template, including a line by line breakdown of the properties and related securities / instruments that the QIAIF intends to utilise (an aggregate percentage per asset class is not acceptable).  Where available, details of the specific target properties should be included.
• Details of the maximum loan to value / leverage limits that will apply, including any debt at SPV / intermediate investment vehicle level. Rationale for such limits should also be provided.
• Details of the QIAIF's liquidity status and any redemption provisions.
• An indication of the expected target market of the QIAIF.

Investment in Crypto-Assets

The revised guidance reinforces the Central Bank’s AIFMD Q&A (ID1145), which provides that in the case of a QIAIF seeking to gain exposure to crypto-assets, the relevant QIAIF needs to make a pre-submission to the Central Bank outlining how the risks associated with such exposures could be managed effectively by the AIFM.  The risks to be considered include those relating to:  liquidity; credit; market; operational (including fraud and cyber risks); money laundering / terrorist financing and legal and reputational risks.

In a situation where a QIAIF proposes to invest no more than 10% of its net asset value in cash settled Bitcoin futures traded on the Chicago Mercantile Exchange, no
pre-submission is required, provided that:

• The cover letter accompanying the QIAIF application refers to the inclusion of crypto-assets exposure.
• In the case of an application for a post-authorisation amendment, shareholder approval is obtained for the revision to the QIAIF’s investment strategy to introduce exposure to crypto-assets. This must also be set out in the cover letter.

It is worth pointing out that the Central Bank recently approved of a QIAIF with a low level of exposure to cash settled Bitcoin futures.

In relation to a direct investment in crypto-assets, the revised guidance provides that the
pre-submission must include details demonstrating how the proposed depositary is satisfied that it can discharge its safekeeping obligations under the European Union (Alternative Investment Fund Managers) Regulations 2013, as amended.

This is an encouraging development and demonstrates that the Central Bank is open to QIAIFs directly investing in crypto-assets, with appropriate controls.

Comment

The revised guidance issued by the Central Bank regarding the QIAIF pre-submission process will be hugely beneficial for promoters of loan origination funds,  funds investing in life settlements, funds with high levels of leverage and property funds investing outside of Ireland.