By Lorraine Lyons – Business Development Representative, AQ Metrics
For the Irish Fund Management industry in the coming year, one regulatory change stands out: namely the introduction of the Fund Management Companies Guidance, or CP86. This far-reaching set of initiatives has of course been in the pipeline since 2014, when the Central Bank of Ireland (CBI) launched the consultation process, and so many of the elements outlined in CP86 should already be in place. However, the deadline for all Irish Funds to demonstrate their compliance with the new rules has now been set for 1 July 2018. In practical terms, this means that anyone sitting on the board of an Irish authorised UCITS management company, alternative investment fund manager (AIFM), self-managed UCITS or internally managed AIF needs to be aware of this new guidance – and have a plan in place for how to meet the new demands.
But what are the aims of CP86 and how is it likely to impact Fund Management (FM) companies in the country? According to the Central Bank of Ireland (CBI), the new rules are “designed to underpin the achievement of substantive control” in the industry, with the aim of further supporting the existing supervisory framework for greater transparency and oversight of the Irish FM sector. And in order to be able to make this assessment, the CBI requires that all fund management company’s board minutes reflect its adherence to the six key compliance areas outlined in the guidance paper. These six areas are as follows:
- Delegate oversight. This relates to when a board delegates certain day-to-day data management activities to external third-party companies. In particular, it stresses that even when certain activities are delegated outside the firm, the board nevertheless remains ultimately responsibility in legal terms and must demonstrate that it still has oversight and control over those functions.
- Organisational effectiveness. One of the independent directors will need to take on this role to ensure that the company structure is kept under ongoing review. They should ensure it is appropriate for the size, nature and complexity of the firm and ought to be ‘change leaders’ who bring proposals to improve effectiveness to the board.
- Directors’ time commitments. Directors are required to commit around 2000 hours to their role and to limit the number of directorships they hold in Fund Management companies.
- Managerial functions. There are six key managerial roles identified in the guidance and each of these must be assigned to individuals within the company, just as they are in other sectors such as banking.
- Operational issues. The CBI requires firms to retain records which can be readily retrieved. Thus if the Central Bank requests documentation from a fund management company before 1pm, it should be provided to the CBI on the same day, or by 12pm on the following business day if requested after 1pm. There is also a new requirement for fund management companies to maintain, and monitor daily, a dedicated e-mail address – and this should also be provided to the CBI.
- Procedural matters. These are the details around how FM companies should apply for authorisation with the CBI, or if they are already monitored, how to maintain their relationship with the Central Bank.
In fact, the overall aim of CP86 is not to introduce a radical set of new regulations but rather to ensure compliance with the existing regulatory obligations and to allow the CBI to carry out engagement without constraint. So while firms may already meet many of these requirements, the new regulation now mandates that they document and demonstrate this in an appropriate and efficient manner. In order to meet these requirements consistently, firms should ensure they have a robust, secure and automated solution in place, which is specifically designed to meet these new requirements.
With the July 2018 deadline for compliance only a matter of months away, the time to be looking at your organisational structure, and thinking about the necessary changes, is very much now.