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Regulator to end hedge fund loan ban

Monday, July 28 10:30:38

The Central Bank of Ireland today said it intends to lift its ban on hedge funds' lending to firms.

The regulator today published a consultation paper 'Consultation on loan originating Qualifying Investor AIF', which signals its intention to lift its long-standing prohibition on lending by alternative investment funds (AIFs). It sets out a proposed framework of rules to apply to specialist loan funds (loan originating Qualifying Investor AIF).

The consultation contains proposals to mitigate financial stability risks including: making Loan Originating Qualifying Investor AIFs closed-ended; leverage limits, and strict requirements on these funds to keep their investors well-informed on the lending they would do.

In addition, a number of key protections are imported from banking regulation concerning credit assessment quality, stress testing and related-party origination. Institutional and professional investors would be the eligible investors.

Gareth Murphy, Director of Market Supervision, said: "We believe that loan origination by investment funds should take place within an appropriate regulatory framework. In proposing to make these significant changes to the Central Bank's AIF rulebook, we have carefully considered the credit needs of the real economy, the financial stability risks which can arise from imprudent lending and the necessity to protect investors."

The proposed rules are the result of a year-long process of discussion and consultation with industry and regulatory peers which included the European Systemic Risk Board.

Following on from extensive engagement with the industry the consultation period will run for four weeks and submissions should be submitted by close of business on 25 August 2014.

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