22 irishfunds.ie

10 March 2017

PREMIUM SPONSORS

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10 March 2017

SPONSORS

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Irish Funds

New York Seminar

10 March 2017

55 irishfunds.ie

Kindly sponsored by Northern Trust

Breakfast

New York Seminar

10 March 2017

66 irishfunds.ie

Chairperson, Irish Funds

Alan O’Sullivan

Welcome Address

Brown Brothers Harriman

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Minister of State for Financial Services, eGovernment and Public Procurement

Eoghan Murphy T.D.

Keynote Government Address

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Update Talk

Irish Funds

Brexit - Andy O’Callaghan, PwC

CP86 - Kevin Murphy, Arthur Cox

MIFID II - Conor Durkin, Mason Hayes & Curran

PwC 9

Brexit Roadmap once Article 50 is triggered

PwC

Potential Brexit models

Sit

ua

tio

nP

ote

nti

al

imp

lica

tio

ns

Under any scenario there will be a change in the current relationship between the UK and the EU.

‘Out’ scenarios

Free trade agreement (FTA)

Bilateral agreement

(Swiss option)

UK negotiates a Free Trade Agreement (FTA) with the EU

Tariff-free trade between the UK and the EU in goods (but not services). UK grandfathers all existing FTAs between the EU and third-party countries

The UK remains part of the EEA and keeps the four freedoms of labour, capital, goods and services

UK will need to make a substantial contribution to the EU budget and comply with EU social, employment and product regulation

The UK enters into a bilateral integration treaty with the EU

UK would have access to some areas of the Single Market, at the cost of adopting the relevant EU regulations

No access agreement

(WTO/MFN)

The UK does not establish any new trade agreements with the EU

Only WTO terms are still applied – UK goods and services would be treated in the same way as American ones in the EU

EEA member (Norwegian

option)

10

The only thing that is certain is that the UK will seek a UK

specific deal…

PwC

Positions taken so far?

•No notification, No negotiation

•The four freedoms (people, services, capital, goods) all go togetherEuropean Commission

•Article 50 should be triggered as soon as possible

European Parliament

•Access to the Single Market requires acceptance of all four freedoms

European Council

•We will invoke Article 50 no later than March 31, 2017

•No deal is better than a bad deal

UK’s Prime Minister,

Theresa May

11

PwC

Regulatory

Operational

● Corporate tax rates● Employment tax rates● Transition tax cost

Substance

People

Phase 1 Phase 2

Tax

● Regulator requirements● Tax authority requirements

● Language● Type of entity● Ease of commercial relationships (i.e.

paper)

● Supervisory approach (day 1 & day 500)● Group Supervision● Model approval● Capital

● Authorisation process● Licensing reach● Support for new platforms● Existing regulations● Prospective regulations

● Systems and controls / Outsourcing● Risk management / Compliance● Corporate law requirements● Ability to expand● Travel

● Employment law● Relocation?

● Access to and cost of resource● Potential workforce size● Ease and cost of hiring● Personal impacts (schools, houses,

lifestyle)

● Branch exemptions● Capital gains exemptions● VAT implications● Double Tax Treaty access● Withholding Taxes

● Infrastructure availability and quality

● Sharing of group staff● Funding● Ability to meet requirements

Selection criteria for new EU location

12

PwC

The European Union landscape post-Brexit

13

Ireland’s commitment to the EU:

Government perspective: The Irish

Government is committed to

safeguarding and promoting Ireland’s

place at the heart of Europe, as an

active and constructive EU member

state*

Public Opinion: Optimism about the

future of the EU is highest in Ireland

among all the 28 Member States.

77% of those surveyed in Ireland

were optimistic about the EU,

compared with an EU average of

50%**

*Source: https://www.dfa.ie/prep/brussels/the-perm-rep/ireland-in-the-eu/

**Source: European Commissions, Standard Eurobarometer poll, which surveys attitudes among

500 million people across the European Union

Latest survey results*

PwC 7

Longer term operating model considerations –Reacting to Brexit should not occur in isolation from your business strategy and business model

Align to strategic and business objectives (What will we do?)

Agree design principles

Operating model development (How will we do it? Who will do it?)

• Who are our target investor and distribution channel and what are their needs?

• What existing projects are underway or in planning that can be leveraged?

• Is this an opportunity for consolidation or further business integration? e.g. systems, products?

• How might our competitors position themselves?

• What are our key capabilities that underpin our strategy?

• Does this align to strategic and business objectives?

• Does this provide maximum flexibility for distribution network? Does it need to be targeted for any key markets?

• Do we outsource or expand our in-house capability?

• Does this leverage existing capabilities or planned projects in new capabilities?

• How will we interact with stakeholders? (Clients, staff, regulators, industry)

• What is our location strategy?

• What are the people needs? What roles and skills are required?

• What are the processes, controls and polices needed?

• What technology systems are required? Should these be built, expanded from existing or off the shelf?

1

2

3

PwC

Phase 4:(a) Produce

detailed step plan

(b) Obtain board approval

(c) Consider external comms.

Potential roadmap for action

Phase 3:(a) Consider tax

implications -managing risks and maximising opportunities

(b) Identify tax team responsibilities

Phase 2:(a) Identify preferred

structure(b) Identify any

business model changes required as a result of regulatory programme

Phase 1:(a) Understand the status of

your current regulatory program

(b) Map commercial needs vs. required permissions

(c) Consider pros and cons of revised structure options

15

1616 irishfunds.ie

Partner - Arthur Cox

Kevin Murphy

CP 86 Management Company

Effectiveness - Update

1717 irishfunds.ie

CP86 - Consultation on Fund Management Company Effectiveness

Applies to fund management companies:

- UCITS mancos

- SMICs

- AIFMs

- Internally managed AIFs

Designed to ensure compliance by fund mancos with regulatory obligations

Pre-emptive response to letterbox threat

Final guidance issued December 2016

1818 irishfunds.ie

CP86 (cont’d)

Final guidance contain 6 chapters

• Delegate oversight

• Organisational effectiveness

• Directors’ time commitments

• Managerial functions

• Operational issues

• Procedural matters

Published Nov 2015

Published Dec 2016

1919 irishfunds.ie

CP86: Chapter 1 – Delegate Oversight

Role of Directors

Retained tasks v. delegated tasks

Internally managed:

• investment management

• distribution

• risk management

• investment operations and administration

• support and resourcing

• use of designated persons – responsible for 6 managerial functions

Externally managed:

• should receive regular reports from manco on each of the above delegated tasks

• not required to replicate oversight by external manco

• should receive regular direct reports from depositary

• should consider receiving reports directly from delegates

Managerial lite

functions

2020 irishfunds.ie

CP86: Chapter 2 – Organisational Effectiveness

New role

Must be an independent director – cannot perform DP functions

Monitors how well a manco is organised and resourced:

• overseeing the arrangements for supervision of delegates

• assessing board practices on a regular basis

Organisational effectiveness a required agenda item at quarterly board

meetings

Requires letter of appointment and time commitment

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Chapter 4 – Managerial Functions

A. Managerial Functions

• 6 key functions – replace existing managerial functions for UCITS and AIFMs

• Investment Management

• Operational Risk Management

• Fund Risk Management

• Distribution

• Regulatory Compliance

• Capital and Financial Management

• Must be performed by DP

• Direct overlap with “Guidance on Delegate Oversight”

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Chapter 4 – Managerial Functions

B. Designated Persons

• Must be senior individual with enough knowledge to interrogate the

information being provided

• Can be director, employee or secondee

• Must have letter of appointment

• Can carry out more than one managerial function (but cannot perform both

investment management and either risk management oversight role)

• Must be approved by the Central Bank to assume Designated Person role

2323 irishfunds.ie

Chapter 4 – Managerial Functions

C. Frequency of Monitoring and Oversight

• Depends on nature, scale and complexity of manco’s activities (ex. daily and

complex v. long term buy and hold)

• DPs must have regular meetings with delegates

• DPs must have capability to review delegate on continuous basis

• close monitoring ≠ day to day monitoring

2424 irishfunds.ie

Chapter 4 – Managerial Functions

D. New Location Rule for Directors and Designated Persons

• 50% of directors resident in EEA

• 2 Irish resident directors

• 3 of the 6 managerial functions must be performed by at least 2 DPs

resident in EEA

• If medium low or higher risk, 3 Irish resident directors or 2 Irish resident

directors and 1 DP in Ireland

• Post Brexit? 14 factors to determine effective supervision

2525 irishfunds.ie

CP86 – Different Models

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Chapter 5 – Operational Issues

Record retention, archiving and retrievability

• records must be immediately retrievable in or from Ireland

• if requested before 1 pm (GMT) then same day delivery, otherwise before 12

noon (GMT) following day

• requirement for written document retention policy

Maintenance of designated and monitored email address (30 June 2017)

2727 irishfunds.ie

CP86 (cont’d)

RequirementsDesignated

email address6 Managerial

functions

Organisational

effectiveness

Retrievability

of records

30 June

20171 July 2018

50% Directors in EEA;

50% of Managerial

Functions performed in

EEA

Timing for Funds

est’d prior to Nov

2015

2828 irishfunds.ie

Partner – Mason Hayes & Curran

Conor Durkin

MiFID II – Impact on Fund Distribution

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Ban on Inducements

Portfolio Management

and

Independent Advice

Inducement Received Inducement Paid

Not permitted, except for

non-monetary benefits

(exhaustive list) that

enhances service quality

Permitted (if disclosed) and

provided quality of service

is enhanced.

Investment services

(Non-independent Advice,

execution only services)

Permitted (if disclosed) and provided quality of service is

enhanced.

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Ban on Inducements

EU firm providing independent advice may not retain trail commissions

Impact:

• Transparent fee charging structures

• Clean share classes, transparent front-end sale charge, CDSCs, etc.

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New Product Development Rules

EU Distributor

Required to establish a governance process to ensure that fund

products are compatible with the needs, characteristics and

objectives of the target market

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New Product Development Rules

US Advisor

Provision of back to back assurances required by EU distributors

Re-negotiation of distribution agreements and requirement for EU

regulatory filings

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Execution Only Services

Execution of orders and

receipt & transmission

of orders

Appropriateness test not required for

listed securities, money market

instruments, UCITS (excluding

structured UCITS), and non-complex

instruments

Firms are required to carry out an

appropriateness assessment if

providing execution only services for

AIFs or structured UCITS

MiFID II implementation date 3 January 2018

irishfunds.ie

Five Secular Trends that are Changing the Global Asset Management Industry for Good

Keynote Address-The Furious Five

Shundrawn A. Thomas, Head of Funds and Managed Accounts

Northern Trust Asset Management

Prudent investors are keenly focused on optimizing risk, return and

costs resulting in a drive toward more efficient investment portfolios

DRIVE TOWARD INVESTMENT EFFICIENCY

GROUPGENDER

GEOGRAPHICAL

Demographic shifts are changing the composition of investment

decision makers requiring different strategies and investment solutions

DEMOGRAPHIC DISRUPTION

GENERATIONAL

The rising tide of regulation in fund management is leading to proactive

and innovative change to existing business and distribution models

REGULATORY RESPONSIVENESS

Demographic shifts, rapid technological adoption and business model

innovation is fueling a renewed focus on retail distribution efforts

REBIRTH OF RETAIL

The integration of human and artificial intelligence is better enabling

business development, portfolio optimization and client engagement

MAN PLUS MACHINE

4040

Moderator:

Panellists:

irishfunds.ie

Evolution of Product Distribution

Panel Discussion

Doug Lindgren, Carne Group

Joe LaRocque, Legg Mason

Tom Richardson, Paulson & Co

Patrick O'Brien, CITI

4141

Moderator:

Panellists:

irishfunds.ie

Focus on LatAm Distribution

Asset Manager Interview

Paul Eisenhardt, OFI Global

Michelle Abrego, Citywire

Toshihisa J. Watabe, Brown Brothers Harriman

4242 irishfunds.ie

Cillian Leonowicz, Deloitte

Regulatory Reporting Project

Keynote Irish Funds Blockchain

Dublin, January 2017

Irish Funds“Project Lighthouse”

BLOCKCHAIN & REGULATION

Since the GFC Regulators, across the globe, have acted to increase financial stability whilst protecting the investor. This has resulted in an increasing regulatory burden which is impacting the bottom line.

REGCHAIN – CONTEXT & BACKGROUND

Increasing Regulatory Requirements – A Varied Industry Response

Additional Resource Offshore Re-engineer Shoe Horn Excel

Add resources and teams to existing capability to meet the new requirements

Move functions and teams to lower cost centres to help manage the cost of servicing

Re-engineer internal processes for more effective regulatory processing

Shoe horn new and regulation bespoke solutions into the legacy system architecture

Develop working models in excel for the completion of regulatory reports

Result

Increasing Servicing Cost Lower Profitability No Real Customer Differentiation

MMIF is the primary control for Irish Domiciled Funds into the Central Bank of Ireland. It is reported on a quarterly basis and populated via Microsoft Excel.

REGCHAIN – MMIF: A CASE IN POINT

As-Is Process

Transfer Agent Regional Regulator

Domestic Regulator

Pro

cess

Ch

allen

ges

Esti

mate

d C

ost

Data Extraction Maker Review Control Checks Beta Checkers Submit via ONR

Manual Processing Data Integrity Regulatory Changes Cost

400 90 600

Total Irish

Domiciled Funds

Average time (in

minutes) taken to complete process

Total hours spent

completing MMIF reports per Quarter

43.5 14

Total hours

available to complete MMIF

reports

Number of

resources required for

MMIF/qtr

x = ÷ =

Number of

resourcesrequired

Annual cost for non-

revenue generating MMIF

report**

€840K60Kx =

Our vision is operational efficient regulatory reporting, providing insightful analytics whilst increasing transparency, auditability and overall industry safety.

REGCHAIN – OUR VISION

Admin 1 Admin 2 Admin 3 Admin N

Domestic Regulator Regional Regulator

Data Integration Services / Interfaces

- Access to submitted

regulatory reports- Ability to run industry level analytics both domestically and regionally

- Have a single view of

data- Ability to receive industry level and firm level analytics in line with data privacy- Streamline regulatory reporting

- Create an immutable repository for all fund information - A RegChain that is regulation agnostic- Central point of change for new regulatory updates

REGCHAIN –Funds Blackbox Reports

Engine

Smart

ContractsPermissioned Blockchain

Immutable Ledger

Analytics Engine

Document Storage

REGCHAIN – OUR PROOF OF CONCEPT FOCUS

Our vision is operational efficient regulatory reporting, providing insightful analytics whilst increasing transparency, auditability and overall industry safety.

REGCHAIN –Funds Blackbox

Admin 1 Admin 2 Admin 3 Admin N

Domestic Regulator Regional Regulator

Data Integration Services / Interfaces

PoC Focus

Reports Engine

Smart Contracts

Immutable Ledger

Analytics Engine

Platforms

1

2

Document Storage

3

4

5

6

1

2

3

4

5

6

6

Upload data to the RegChain

Encrypt and store data with IPFS

Maker reviews data and runs report

Executes requirements of the regulation

Checker reviews and submits to the regulator

Regulator reviews filings and assesses industry analytics

Permissioned Blockchain

4

Streamlining compliance with ancillary benefits for industry.

REGCHAIN – THE BENEFITS

The Benefits

Process Efficiency Security Analytics

Access IFPS

Decrypt the file

Modify the file

Encrypt the file

Access to RegChain

Modify Smart Contract

Network accept modification

To hack the proposed technical structure of RegChain you must:

DEMO

SEE THE DEMO AT OUR STAND DEMO

5252

Moderator:

Panellists:

irishfunds.ie

What projects you should be considering and how soon will they no longer be

relevant? Deliberations to include Blockchain, Relevant Data vs. Big Data and the

Rise of Robo & D2C in Europe

Panel Discussion – Innovation Initiatives

David Dalton, Deloitte

Hu Liang, State Street

Adam Broun, Kensho

Anna Irrera, Reuters

5353 irishfunds.ie

Pat Lardner

Closing Remarks & Thank You

Chief Executive - Irish Funds

5454 irishfunds.ie

6 March 2017

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6 March 2017

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