Central Bank of Ireland issues consultation on removal of prohibition on certain third party guarantees and security arrangements

The Central Bank of Ireland (Central Bank) has issued a consultation paper, CP162, seeking market feedback on a number of proposed enhancements to their AIF Rulebook including, in a fund finance context, the proposed removal of the historical regulatory prohibition which prevents Alternative Investment Funds (AIFs) from acting as a guarantor on behalf of third parties. 

The term 'guarantor' is not defined but, in practical terms, historically this was generally understood to mean that Irish authorised AIFs can guarantee, secure and/or be responsible for the obligations of themselves and their wholly owned subsidiaries but they cannot guarantee, give security for and/or be responsible for any other party.

In its fiftieth edition of its AIFMD Q&A, published March 2025 (available here) the Central Bank helpfully relaxed the scope of this restriction as it applies to Qualifying Investor Alternative Investment Funds (QIAIFs), subject to satisfaction of certain conditions.¹

Following further constructive engagement with industry, which Walkers has been centrally involved in, the Central Bank is now proposing a complete removal of this restriction for QIAIFs. This would include all ICAVs and Investment Limited Partnerships which are authorised as QIAIFs. The restriction does not apply to European Long-Term Investment Funds (ELTIFs) and it is very welcome to now see the Central Bank advocating for alignment between the two regimes.

Timeline

The consultation period will run for eight-weeks and it is anticipated that the removal of the prohibition will be effective before the year-end..

Commentary

While the existing prohibition was unhelpful for master / feeder structures, it was possible to deal with the restriction by implementing a cascading pledge. 

The proposed removal of the restriction is a welcome development in a fund finance context for transactions involving Irish entities. This change will simplify deals and allow QIAIFs to provide direct guarantees and security for certain other obligors instead of requiring a more cumbersome and costly cascading pledge arrangement. While there will no longer be any Irish regulatory driver for a cascading pledge, it will still be possible to implement a cascade for other purposes e.g. ERISA or other commercial reasons.   

The proposed removal of the prohibition brings the QIAIF regime broadly in line with other key funds jurisdictions and with the current position for Irish AIFs established as ELTIFs which also does not explicitly prohibit the granting of third-party guarantees.

This development can be expected to ultimately benefit investors and market participants by reducing deal complexity and costs of permitted financings while also strengthening Ireland's position as a recognised centre of excellence for the private funds industry.

^{1 Please see our article “Fund Finance: Central Bank of Ireland relaxes regulatory prohibition on provision of third-party guarantees by QIAIFs”, available here for a more focussed discussion on the relaxation of this prohibition.}