The Central Bank of Ireland (“CBI”) has been issuing reminder letters to companies which have elected into the securitisation regime in Section 110, Taxes Consolidation Act, 1997, asking them to start filing certain statistical information. Our Asset Management team explain the implications below.
While styled as requests to commence reporting, these letters are really reminders as almost all Section 110 companies are obliged to automatically register with, and report to, the CBI in respect of this data. We summarise the reporting requirements below.
Whilst companies which have elected into the securitisation regime in Section 110 regime are not regulated by Ireland’s financial services regulator (the CBI), almost all Section 110 companies are nevertheless obliged to report certain statistical information to the CBI on a quarterly basis.
Financial Vehicle Corporations
Since 2009, Section 110 companies which are also Financial Vehicle Corporations (“FVCs”) have been obliged to report certain statistical information to the CBI pursuant to both EU regulations and Irish domestic provisions in the Central Bank Acts 1942-2013.
This reporting obligation applies to any Irish incorporated Section 110 company whose principal activity is carrying out “securitisation” transactions where:
- it is insulated from the risk of bankruptcy or any other default of the originator); and
- it issues securities and/or legally or economically owns assets underlying the issue of those securities.
The CBI considers such a company to be “principally” engaged in securitisation activities where such transactions account for more than half of its balance sheet.
Importantly, the definition of “securitisation” in the context of what constitutes an FVC is much narrower than the range of possible transactions that such a company is permitted to enter into under the Section 110 rules. In broad terms, the more limited scope of transactions which are within scope of this definition require the establishment of a special purpose entity which issues financial financing instruments to investors and uses the proceeds to do one or more of the following:
- acquire an asset or pool of assets from the originator by the transfer of legal title or beneficial interest or through sub-participation; or
- transfer the credit risk of an asset or pool of assets through the use of derivatives or guarantees to the investors; or
- acquire insurance risks from an insurance or reinsurance undertaking.
Given the limited scope of the above, there are many Section 110 companies which are not FVCs and, consequently, are not subject to the FVC reporting requirements.
Extension to SPVs
However, in 2015, the CBI exercised its powers under the Central Bank Act, 1971 to compel reporting to it of statistical information by any Section 110 company which has a business of issuing, holding or otherwise participating in any market in financial instruments” (which it refers to as “SPVs”).
This is very broad and generally would mean that almost all Section 110 companies are in-scope SPVs. However, the CBI do allow for a limited number of exceptions to the reporting requirements:
- Non-Irish incorporated companies (even if tax resident in Ireland);
- Companies already reporting to the CBI as FVCs;
- Companies which have already been liquidated; and
- Companies which have disposed of all assets (save for cash holdings of less than €500,000) - so long as there are no future plans to acquire assets or undertake transactions above €500,000 in total.
Registration and reporting
An FVC or SPV within scope of reporting must register with the CBI no later than 5 working days after the vehicle engages in its first financial transactions (see FAQ Document for details).
The FVC or SPV must the file a report with the CBI for each calendar quarter no later than 29 working days from the end of the relevant quarter. The report requires details on matters such as:
- Cash, deposits, loans extended by the FVC or SPV, and reverse repo/securities borrowing
- Debt securities held by the FVC or SPV, including holdings of profit participating notes
- Securitised loans, which were extended by a third party but subsequently bought by the FVC or SPV
- Deposits received, loans given to the FVC or SPV, and repos / securities lending
- Debt securities issued by the FVC or SPV, including profit participating notes
- Mixed Assets/Liabilities
- Derivative positions engaged in by the FVC or SPV.
- Assorted items, including equity, non-financial and other assets
- Total Assets/Liabilities of the FVC or SPV
- Annual Profit & Loss data for the FVC or SPV
Failure to comply with the reporting requirements is an offence with penalties as follows:
- on summary conviction, to a fine of up to €1,270 and/or imprisonment for up to 12 months; and
- on conviction on indictment, to a fine of up to €63,490 and/or imprisonment for up to 5 years.
Further penalties can apply if there is continued contravention of the reporting requirements after a conviction. In practice, it is likely that the CBI would pursue a High Court enforcement action prior to commencing a prosecution. Nevertheless, non-compliance could have serious consequences.
Get in touch
If you would like to discuss the reporting requirements, please get in touch with our team below. We’d be delighted to hear from you.
Contact our team
Jorge Fernandez Revilla
Partner, Head of Asset Management
KPMG in Ireland
Partner, Financial Services
KPMG in Ireland
Leading provider of tax, audit, consulting and advisory services for the Asset Management industry
Leading provider of tax, audit, consulting and advisory services for the Asset Management