07 September 2016
On 2 June 2016, the Central Bank published a further consultation (CP) on fund management company effectiveness, a project first initiated in 2014 (CP86). The CP focuses on three areas which the Central Bank has identified as those where a fund management company can demonstrate it has strength, it is a company of substance and can better protect investors.
The three key areas are:
Fund management companies mean a UCITS management company, a UCITS self-managed investment company, an authorised AIFM and a self-managed AIF. The CP includes draft guidance on three further chapters of the guidance for fund management companies (which the Central Bank initially issued in November 2015) on the topics of managerial functions, operational issues and procedural matters.
The draft guidance on managerial functions provides that designated persons are the fund management company's line of management between directors and delegates. Although a director can be a designated person, the CP appears to draw a distinction between the board of directors, which it states is not involved in managing the fund management company on a day to day basis, and the designated persons who do.
It is possible for a designated person to oversee more than one managerial position, and the same designated person may carry out the separate managerial functions of fund risk management and operational risk management but may not also perform the investment management managerial function. In addition, the CP sets out guidance for designated persons working in different locations and guidance on frequency of meetings between designated persons and delegates.
The Central Bank considers that access to a fund management company's records, directors and designated persons is particularly important in the context of the company's ‘supervisibility’. The Central Bank is proposing a number of rules and guidance relating to the location of directors and designated persons based on the company's regulatory probability risk and management system (PRISM) rating.
A fund management company with a PRISM impact rating of at least ‘medium low’ will be required to have at least:
A fund management company which has a PRISM impact rating of low (this would include most fund management companies) will be required to have at least:
Fund management companies will be required to keep all of their records in a way that makes them immediately retrievable in or from Ireland. A fund management company will also be required to maintain and monitor a dedicated email address for the purposes of Central Bank communications.
The Central Bank's November 2015 first stage guidance on fund management companies included guidance on the ‘organisational effectiveness role’. The Central Bank makes it clear that for fund management companies authorised on or after 1 November 2015, the guidance on this topic should currently be implemented in full including the conduct of an annual review.
The consultation is open until 25 August 2016 and the Bank envisions providing a transitional period of one year following the completion of the consultation process for fund management companies to comply with the new rules and guidance. It would therefore seem that the new rules and guidance would be unlikely to be effective much before 1 January 2018.