In December 2016, the Central Bank of Ireland (CBI) published its final guidance on Consultation Paper 86 “Fund Management Companies – Guidance” (Guidance). It came into full effect on 1 July 2018.
The CBI has stated that it will assess how Fund Management Companies (FMCs) have implemented the Guidance, and in particular, the Organisational Effectiveness requirements.
The CBI has further advised the industry that a thematic review will commence that will aim to measure and evaluate how firms have implemented CP86 since its introduction in July 2018.
The process will involve CBI supervisory engagement with individual firms to understand how they have structured themselves, with a heavy emphasis on the six key managerial roles performed by Designated Persons (DPs). The 3-step process will be:
- A questionnaire with a 5th July deadline has already been issued to firms by the CBI
- A desk-top review by the CBI
- An on-site inspection by the CBI.
The questionnaire that was issued by the CBI on 21st June, with a deadline for completion of 5th July, will bring renewed spotlight on how individual firms are managing key managerial functions on a day-to-day basis. This will bring into focus the question of:
- Seniority, experience and expertise of DPs;
- Approach to managing and monitoring risk on a daily basis;
- Ensuring appropriate measures and means of supervision of all delegates are in place;
- Identification of the party who yields the actual decision-making powers.
There is a requirement that there is an independent director with the specific task of reviewing the effectiveness of the FMC’s organisational arrangements. The CBI has listed examples of the activities involved, which will require submission of proposals to the board and driving the related change agenda. The CBI will focus on the assessment work performed by the Organisational Effectiveness role holder, and how the board of the FMC has implemented any related recommendations.
The Guidance identifies six distinct areas, aligned to the managerial functions, where the board of the FMC should direct specific attention in the oversight of delegates. Therefore, DPs are responsible for monitoring and oversight of the approaches and strategies approved by the board and the compliance of delegates and third-party outsourced services with these requirements.
The CBI has formally announced it will introduce Individual Accountability, in a similar manner to SMCR, this will initially include investment managers, and may extend further than proposed. Furthermore, the CBI’s recent thematic review of UCITS Performance fees indicated that some entities may not be acting in the best interests of investors.
We have noted in practice that the CBI are reviewing the role and internal landscape of the FMC in greater detail to ensure that investors’ interests are being adequately served. This is more than a governance exercise, proper implementation will give comfort to regulators that FMC’s are acting as the investors’ agents.