AML Update: New ICAV and Unit Trust Central Register of Beneficial Ownership Obligations in Ireland
September 09, 2020
This OnPoint provides an overview of the long-awaited central register of beneficial ownership filing requirements for both ICAVs and Unit Trusts in Ireland together with an update on the specific issues related to maintenance of a beneficial ownership register for Unit Trusts.
Background
Under Directive (EU) 2015/849 (“4AMLD”), as amended by Directive (EU) 2018/843 (“5AMLD”), corporate and legal entities incorporated in European Union member states (“Member States”) are required to hold the details of their beneficial owners1, which must then be filed with a central register held by Member States2. The Irish implementation of 4AMLD and 5AMLD has been carried out in a piecemeal fashion as outlined below.
ICAVs have been required to hold an internal register of beneficial ownership since the introduction of the European Union (Anti-Money Laundering: Beneficial Ownership and Corporate Entities) Regulations 2016 (S.I. No. 560 of 2016) (the “2016 Regulations”) which took effect in Ireland on 15 November 2016, and Unit Trusts (along with their management company and trustee) have been under a similar obligation since the introduction of the European Union (Anti-Money Laundering: Beneficial Ownership of Trusts) Regulations 2019 (S.I. No. 16 of 2019) (the “Express Trust Regulations”), which took effect in Ireland on 29 January 2019.
The European Union (Anti-Money Laundering: Beneficial Ownership and Corporate Entities) Regulations 2019 (SI. No. 110 of 2019) (the “2019 Regulations”) replaced the 2016 Regulations and implemented the requirement for, inter alia, Irish investment funds, investment firms, and fund service providers structured as corporate entities to file their beneficial owner(s) details with a central register. The 2019 Regulations came into force in Ireland on 22 March 2019. See our previous OnPoint for more detail.
However, there was a lacuna in these requirements as to the submission of beneficial ownership information in respect of, inter alia, ICAVs and Unit Trusts to a central register as those types of investment funds were not in scope of the 2019 Regulations. In order to correct this lacuna, on 25 June 2020, the Minister for Finance in Ireland published the European Union (Modifications of Statutory Instrument No. 110 of 2019) (Registration of Beneficial Ownership of Certain Financial Vehicles) Regulations 2020 (S.I. No. 233 of 2020) (the “Financial Vehicle Regulations”), which amend and should be construed together with the 2019 Regulations.
The Financial Vehicle Regulations establish the “Central Register of Beneficial Ownership of Irish Collective Asset-management Vehicles, Credit Unions and Unit Trusts” (the “FV Register”). ICAVs and Unit Trusts in existence as of 25 June 2020 have until 25 December 2020 to file their beneficial ownership details with the FV Register (via the ONR), which is operated by the Central Bank. ICAVs and Unit Trusts established after this date will have six (6) months from the date of their coming into existence to make the filing.
For the purposes of the Financial Vehicle Regulations, an ICAV is deemed to come into existence on date of the Registration Order of an ICAV. In the case of a Unit Trust, generally it will be deemed to come into existence by virtue of its authorisation by the Central Bank under the Unit Trusts Act 1990 (in the case of an AIF) or the UCITS Regulations4.
ICAV Requirements
The definition of a “beneficial owner” of an ICAV is the same as for corporate entities under the 2019 Regulations (i.e. the 4AMLD definition), which is any natural person(s) who ultimately owns or controls the customer and/or the natural person(s) on whose behalf a transaction or activity is being conducted and includes at least:
“(i) the natural person(s) who ultimately owns or controls a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity, including through bearer shareholdings, or through control via other means, other than a company listed on a regulated market that is subject to disclosure requirements consistent with [European] Union law or subject to equivalent international standards which ensure adequate transparency of ownership information.
A shareholding of 25 % plus one share or an ownership interest of more than 25 % in the customer held by a natural person shall be an indication of direct ownership. A shareholding of 25 % plus one share or an ownership interest of more than 25 % in the customer held by a corporate entity, which is under the control of a natural person(s), or by multiple corporate entities, which are under the control of the same natural person(s), shall be an indication of indirect ownership…
(ii) if, after having exhausted all possible means and provided there are no grounds for suspicion, no person under point (i) is identified, or if there is any doubt that the person(s) identified are the beneficial owner(s), the natural person(s) who hold the position of senior managing official(s), the obliged entities shall keep records of the actions taken in order to identify the beneficial ownership under point (i) and this point;”5
The information required to be filed by existing ICAVs by 25 December 2020 (or within 6 months of new ICAVs coming into existence) in respect of their beneficial owners (who must be natural person(s)) is largely similar to that which already has to be filed by Irish corporate entities under the scope of the 2019 Regulations and includes:
- name;
- date of birth;
- nationality;
- residential address;
- a statement of the nature and extent of the interest held by each beneficial owner;
- the date on which each natural person was entered in the register as a beneficial owner; and
- the pre-approval controlled function (“PCF”) status6 of the beneficial owner.
If, having “exhausted all possible means”, no natural persons are identified as beneficial owners, the names and details of one or more senior managing officials (i.e. at a minimum, the members of the board of directors of the ICAV) shall be entered in the register (the “SMO Position”). If relying on the SMO Position, relevant entities are required to keep a record of the actions taken to identify their beneficial owners.
Notably, the requirement to submit the Personal Public Service (PPS) Number(s) of the beneficial owner(s) of ICAVs (and Unit Trusts) has been specifically excluded by the Financial Vehicle Regulations (but this remains a requirement for corporate entities which are in scope of the 2019 Regulations).
An ICAV must keep its (internal) beneficial ownership register up to date, and this information must align with that filed on the FV Register (known as the “follow up obligation”). Any changes to the information filed on the FV Register must be notified to the FV Register within fourteen (14) days of such a change, which it is understood will also be via the Central Bank’s ONR.
In the coming months the Central Bank will establish an online portal for access to the FV Register, akin to the existing “Central Register of Beneficial Ownership of Companies and Industrial and Provident Societies” which is operated by the Irish Companies Registration Office (“CRO”) in respect of corporate entities filing under the 2019 Regulations (the “Central Register”). Details of the un/restricted access rights to information held on the FV Register are set out in Access to the information on the FV Register below. However, the filing in respect of an ICAV or Unit Trust will be made via the ONR using the Beneficial Ownership Submission Form under the Beneficial Ownership Information Return.
Unit Trusts – “by analogy with a company with share capital”
The filing requirement for Unit Trusts is not as straightforward as for ICAVs, although the Financial Vehicle Regulations provide a welcome and more sensible approach to identification of beneficial owners of a Unit Trust than the Express Trust Regulations.
The Express Trust Regulations oblige Unit Trusts to maintain an internal register of beneficial owners. However, the definition of a beneficial owner for the purposes of the Express Trust Regulations is extremely broad and relies upon the 4AMLD definition of a beneficial owner in respect of a general trust (i.e. there is no distinction between a general trust and a trust established as an investment fund which may be widely held).
Under the Express Trust Regulations, a beneficial owner means any natural person(s) who ultimately owns or controls the Unit Trust and could include at least: (i) the settlor(s) – i.e. the management company; (ii) the trustee(s) – i.e. the trustee; (iii) the beneficiaries i.e. investors and the beneficiaries of nominee holdings; and (iv) any other natural person exercising ultimate control over the trust by means of direct or indirect ownership or by other means. The broad nature of this definition (and specifically the lack of any minimum threshold of shareholding/ownership) means that in reality, for an investment fund structured as a Unit Trust, there could be hundreds if not thousands of beneficial owners.
The Financial Vehicle Regulations accept, however, that the characteristics of a Unit Trust mean that to require a Unit Trust to make a filing with the FV Register “in the context of Article 30 of [4AMLD]” would be improper and indeed potentially unworkable for a Unit Trust, given the likely very large number of beneficial owners, and therefore “is not to be equated with every instance in which one or more units in such a trust are held by a particular natural person but - by analogy with a company with a share capital”.9
In a move much sought by industry, the definition of what a beneficial owner is in respect of a Unit Trust has been tightened from that which is described in 4AMLD. For the purposes of a Unit Trust under the Financial Vehicle Regulations, “beneficial owner” means10:
(a) a natural person who owns, or is ultimately entitled to control, more than 25 per cent of the units in the entity, or
(b) any other natural person exercising ultimate control over the entity by means of direct or indirect ownership or by other means,
and shall be deemed to include any trustee under, or the settlor of, the arrangements that constitute the entity (whether or not falling within either or both of the preceding subparagraphs); (emphasis added)
It is understood that the references to the trustee and/or settlor above mean the corporate entity that acts as trustee and the management company to a Unit Trust, respectively.
For Unit Trusts, the Financial Vehicle Regulations are deemed to apply to the management company in respect of the trust11 (and therefore the responsibility does not also lie with the trustee, as is the case under the Express Trust Regulations). As such, the natural persons who are deemed to be the beneficial owners of each of the management company of the Unit Trust (as the settlor of it, which in itself will always be a corporate entity) and the trustee will, at a minimum, be in scope for inclusion in the beneficial ownership register for a Unit Trust, along with any unitholder holding or entitled to hold 25% plus 1 unit of the units of the Unit Trust and any person exercising ultimate control.
However, it is understood that the trustee and/or management company itself (i.e. the corporate entity) is to be listed on the beneficial ownership register, given the Central Bank already has detailed information of the beneficial ownership of such regulated entities. Clarification on this point is expected in due course.
It should be noted that, in respect of a Unit Trust, the SMO Position described above cannot be relied on12. This determination is likely owing to the fact that a Unit Trust will always have a management company (along with the trustee) in fact controlling it.
The protocols in terms of the requirement to keep a record of actions taken to identify beneficial owners and the follow-up obligation apply to Unit Trusts, in the same way as to ICAVs.
Unit Trusts – Typical Examples
Example A:
A non-Irish promoter (owned by two natural persons with equal shares and voting rights) establishes a wholly-owned Irish subsidiary as a proprietary management company along with a Unit Trust. The Unit Trust is constituted with an Irish trustee which is ultimately widely held and has no natural person who is a beneficial owner for the purposes of the Financial Vehicle Regulations.
The FV Register filing will be required to include, at a minimum:
(a) the two natural persons who own the promoter (as beneficial owners of the management company);
(b) the trustee*; and
(c) any natural person(s) who owns, or is ultimately entitled to control 25 per cent plus 1 unit of the units of the Unit Trust.
* The Financial Vehicle Regulations disapply the SMO Position in the case of Unit Trusts, and accordingly while it would appear that there is no obligation for a trustee which has no beneficial owner(s) to list its senior managing officials on the FV Register, it is understood that the corporate entity that is the trustee will be entered on the FV Register. Clarification on this point from the Central Bank may be issued in due course.
Example B:
A non-Irish promoter appoints an Irish management company (owned by ten natural persons with equal shares and voting rights) and establishes a Unit Trust. The Unit Trust is constituted with an Irish trustee which is ultimately widely held and has no natural person who is a beneficial owner for the purposes of the Financial Vehicle Regulations.
The FV Register filing will be required to include, at a minimum:
(a) the management company;
(b) the trustee**; and
(c) any natural person(s) who owns, or is ultimately entitled to control 25 per cent plus 1 unit of the units of the Unit Trust.
** See commentary above on this point.
In this example, whilst the Irish management company is in scope of the Financial Vehicle Regulations, as it is widely held it is deemed not to have a beneficial owner. As the SMO Position cannot be relied on in the case of the beneficial owners of a Unit Trust, there is no requirement for the senior managing officials of the management company to be listed on the FV Register by way of a strict interpretation of the Financial Vehicle Regulations. However, it is understood that the corporate entity that is the management company will be listed on the FV Register.
The Express Trust Regulations – Internal Register requirements still unworkable for Unit Trusts
While the Financial Vehicle Regulations provide a sensible solution with respect to the beneficial ownership filing requirements for Unit Trusts, the requirement to maintain an internal register pursuant to the broader and often unworkable requirements of the Express Trust Regulations technically remains. Accordingly, the internal register maintained by the Unit Trust is obliged to include, for example, all investors (and the beneficial owners of those investors) in order to fully comply with the Express Trust Regulations.
Common Contractual Funds and Investment Limited Partnerships – equivalent changes expected in due course
The Central Bank’s initial guidance and FAQs on the FV Register state that the Minister for Finance has indicated that Investment Limited Partnerships registered under the Investment Limited Partnerships Act, 1994 (“ILPs”) and Common Contractual Funds established pursuant to the Investment Funds, Companies and Miscellaneous Provisions Act 2005 (No. 12 of 2005) (“CCFs”), will also be required to file details of their beneficial owners on the FV Register in due course.
This is also supported by the Opinion of the European Central Bank (the “ECB”) of 18 June 202013 which discusses the draft Investment Limited Partnerships (Amendment) Bill 2020 (the “ILP Bill”), and states that the ILP Bill proposes to establish “The Central Register of Beneficial Ownership of Common Contractual Funds and Investment Limited Partnerships”.
The ILP Bill proposes to define a “beneficial owner”, in relation to an ILP or a CCF, as:
“any individual who –
(a) ultimately is entitled to or controls, whether the entitlement or control is direct or indirect, more than a 25 per cent share of the capital or profits of the [ILP/CCF] or more than 25 per cent of the voting rights in the [ILP/CCF], or
(b) otherwise controls the [ILP/CCF];”
The ILP Bill proposes that the general partner of an ILP or the management company of a CCF will be responsible for complying with the obligations with respect to beneficial ownership thereunder.
Access to the information on the FV Register
As with the Central Register, there will be two tiers of access to data on the FV Register:
1. Unrestricted access to the information in the FV Register will be afforded to authorised officers within certain Irish organisations i.e. a Garda Síochána (the Irish police force), the Financial Intelligence Unit of a Garda Síochána, the Revenue Commissioners, the Criminal Assets Bureau, the Central Bank, the Department of Justice & Equality, the Property Services Regulatory Authority, the Law Society of Ireland, the General Council of the Bar of Ireland, certain accountancy bodies14, and an inspector appointed by the Director of Corporate Enforcement under section 764 of the Companies Act 2014; and
2. Restricted access to information in the FV Register will be made available to the general public and designated persons carrying out due diligence, save where the beneficial owner is a minor. Those with restricted access will be able to access the name, month and year of birth, nationality, country of residence, and a statement as to the nature and extent of the beneficial interest held. The beneficial owner’s date of birth and address will not be available to those with restricted access.
Penalties
Failure to maintain an “adequate, accurate and current” register of beneficial owners of an ICAV or Unit Trust and/or failure of the ICAV or Unit Trust to deliver beneficial ownership details to the FV Register may result in:
- on summary conviction, a Class A fine (not greater than €5,000); or
- on conviction on indictment, a fine not exceeding €500,000
In contrast to the 2019 Regulations, the Financial Vehicle Regulations are a designated statutory instrument for the purposes of the Central Bank Act 1942, as amended, and accordingly a breach is a prescribed contravention. Breaches may, therefore, be subject to the Central Bank’s administrative sanctions regime and/or proceedings for offences may be brought and prosecuted summarily by the Central Bank. As the obligations in respect of a Unit Trust apply to its management company, such service providers should take specific note of these penalties.
Limited Companies – no change to existing obligations
The equivalent requirement for limited companies in Ireland to maintain beneficial ownership information and file details with the CRO has been in place since 22 November 2019. Please refer to our previous OnPoint regarding corporate entities such as investment funds incorporated as public limited companies, and management companies or special purpose vehicles incorporated as private companies limited by shares or designated activity companies.
Conclusion
ICAVs, Unit Trusts, and their managers should take note of the initial filing deadline of 25 December 2020 and commence the analysis of their beneficial ownership without delay. The Central Bank has published a Guidance Document and FAQ regarding the FV Register. Please contact the authors or your usual Dechert contact for further information and assistance in complying with the Financial Vehicle Regulations.
Previous Dechert OnPoints regarding beneficial ownership requirements in other jurisdictions are also available for Luxembourg and Belgium. Also see our previous OnPoint setting out some of the background to beneficial ownership requirements for Irish investment funds.
Footnotes
1. Article 30(1) 4AMLD.
2. Article 30(3) 4AMLD as amended by Article 1(15)(c) 5AMLD.
3. Unit Trusts schemes registered under the Unit Trusts Act, 1972 are deemed to be in existence for the purposes of the Financial Vehicle Regulations.
4. European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I. No. 352 of 2011), as amended.
5. Article 3(6) of 4AMLD.
6. The Beneficial Ownership Submission Form requires the question “Is the person currently a PCF in this or any other Regulated Financial Services Provider?” to be answered.
7. By virtue of Regulation 5(c) of the Financial Vehicle Regulations.
8. As set out at (6)(b) of Article 3 of 4AMLD.
9. Regulation 3(1)(a)(i) of the Financial Vehicle Regulations.
10. Regulation 4(1) of the Financial Vehicle Regulations.
11. Regulation 4(3) of the Financial Vehicle Regulations which also explicitly provides that: “nothing in the foregoing operates, or has operated, to displace references in the provision concerned to beneficial ownership of the relevant entity in favour of references to the beneficial ownership of that management company”.
12. See: Regulation 4(2) of the Financial Vehicle Regulations, which disapplies Paragraphs (4) and (5) of Regulation 5 of the 2019 Regulations i.e. disapplying the SMO Position, being the requirement to list one or more natural persons who hold the position of the senior managing official of the relevant entity in circumstances where either: (a) after having exhausted all possible means and provided there are no grounds for suspicion by the relevant entity, no natural person is identified as a beneficial owner; or (b) there is any doubt that any natural person so identified is a beneficial owner of the relevant entity.
14. Within the meaning of Part 4 of the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (No. 6 of 2010).
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