The Central Bank has recently provided feedback on its consultation (CP68) on types of alternative investment funds under AIFMD and unit trust schemes under the Unit Trusts Act 1990 (including EUTs, REITs, etc.)

Exempt Unit Trusts (EUTs)

CP68 asked industry participants to comment on whether an EUT is an AIF under AIFMD and also a unit trust scheme within the scope of the Unit Trusts Act 1990. EUTs have typically been structured for pension fund and charity clients, investors regarded by the Revenue Commissioners as “exempt” from certain taxes.  In light of the limited number of investors qualified to invest in EUTs, it had been considered that they did not provide for public participation and therefore fell outside the scope of the Central Bank’s remit.   In its feedback statement on CP68, the Central Bank confirms that marketing of AIFs to retail investors is subject to Central Bank requirements and it is not relevant whether the AIF provides for participation by the public.

In light of the Central Bank’s analysis of responses to CP68, it has issued the following guidance:

• From 1 May 2014, new unit trust schemes made available to beneficiaries in Ireland should seek authorisation from the Central Bank under the Unit Trusts Act 1990, where they are alternative investment funds under AIFMD, notwithstanding that they hold an exemption from tax obtained from the Revenue Commissioners.
• New unit trust schemes should not seek authorisation if eligible investors are confined to charities and/or regulated occupational pension scheme where the occupational pension scheme has multiple beneficiaries and is not a small Self-Administered Scheme.  A unit trust scheme which meets the grounds for this exemption may, nevertheless, meet the conditions for being an AIF as defined in the AIFMD.  In that case, the AIFM must register or seek authorisation under AIFMD.
• A unit trust scheme which is constitutionally confined to one ultimate beneficiary should not seek authorisation.  Where there are multiple sub-trusts, the constitutional documents for the master trust and the sub-trusts must be organised so that each sub-trust can have only one beneficiary and there is no sharing of benefits between sub-trusts.
• Unit trust schemes which are already in existence and which, had they come into existence after 1 May 2014, would have required authorisation must apply for authorisation by 1 October 2014 unless they have, in the interim, restructured to avail of the exemptions from the requirement for authorisation mentioned above.

Unit trust schemes which are closed-ended and the AIFM of which can avail of the grandfathering arrangement set out in Regulation 60(3) of the AIFM Regulations are recommended not to seek authorisation.  For the purposes of Regulations 60(3) “closed-ended schemes” can be read to include EUTs which have an appropriate formal plan in place in relation to their termination. 

REITs and SPVs

With regard to REITs, the Central Bank considers that the onus remains on any REIT to demonstrate that it is not an AIF.

The Central Bank does not propose to issue any general conclusions on SPVs pending further consideration of the issue by ESMA and refers readers to the Central Bank’s AIFMD Q&A which confirms that financial vehicles engaged solely in activities where economic participation is by way of debt or other corresponding instruments which do not provide ownership rights in the financial vehicle as are provided by the sale of units or shares do not need to seek authorisation, or appoint, an AIFM unless the Central Bank issues a Q&A advising them to do so.

The guidance issued by the Central Bank in the feedback statement is to be reflected in the Central Banks AIFMD Q&A in due course.

Contributed by Vincent Coyne