IRELAND Law and Practice Contributed by: Niall Esler, Shane Martin, James O’Doherty and Laura Whitson, Walkers
MiCAR should not apply where crypto-asset ser - vices are provided in a fully decentralised man - ner without any intermediary. MiCAR instead proposes that the Commission shall present a report to the European Parliament containing an assessment of the development of DeFi in the crypto-assets markets and of the adequate reg - ulatory treatment of decentralised crypto-asset systems without an issuer or CASP, including an assessment of the necessity and feasibility of regulating DeFi. In January 2025, the EBA and ESMA published a Joint Report on recent devel - opments in crypto-assets, including DeFi. 10.10Regulation of Funds Irish regulated investment funds are authorised either as UCITS or as alternative investment funds (AIFs). Distinctions Between Digital Assets The Central Bank has provided guidance on investment in digital assets, which are generally considered to be assets that exist in digital form and that attach ownership rights that depend primarily on cryptography and distributed ledger or similar technology. This guidance recognises that the nature and characteristics of digital assets vary considerably, and distinguishes, for example, between digital assets that are tokenised traditional assets and digital assets that are based on intangible or non-traditional underlying assets. For the purposes of its requirements, the Central Bank considers “digital assets” to be the latter type of digital asset. Its guidance states that the Central Bank is highly unlikely to approve a UCITS or an AIF marketed to retail investors proposing any exposure (either direct or indirect) to digital assets.
In April 2023, the Central Bank increased the investment limits for QIAIFs seeking exposure to the latter type of digital assets, as follows: • where a QIAIF is open-ended, it can gain exposure to digital assets of up to 20% of NAV; and • where a QIAIF is closed-ended or is open- ended with limited liquidity, it can gain expo - sure to digital assets of up to 50% of NAV. In order to avail of these limits, AIF managers must ensure the following requirements are sat - isfied: • an effective risk management policy is imple - mented to address all risks relevant to invest- ment in digital assets, at a minimum address - ing risk relating to liquidity, credit, market, custody, operational, exchange risk, money laundering, legal, reputational and cyber-risk; • appropriate stress testing on the proposed investment in digital assets, reflecting the asset price volatility of digital assets, includ - ing the potential entire loss of value in the investment; • an effective liquidity management policy is in place, which includes a sufficient suite of tools to enable the AIF manager to manage liquidity events arising in the QIAIF; • the prospectus of the QIAIF must contain clear disclosure in relation to the nature of the proposed investment in digital assets and a clear articulation of the risks associated with that investment; and • the QIAIF should assess the overall construc - tion of its portfolio to ensure that there is alignment between the redemption profile, the level of investment in digital assets and the likelihood of illiquidity (in both normal and stressed conditions) in the types of digital assets invested in.
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