ICSA Ireland

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Directors’ Compliance Statement – UCITS and Fund Service Providers

07 September 2016

The Companies Act 2014 (the Act) introduced, in section 225 thereof, a new requirement that directors of public limited companies and large private limited companies make an annual compliance statement (the directors’ compliance statement) in the directors’ report. The report forms part of the company’s annual financial statements. The directors' compliance statement requirement affects financial years beginning on or after 1 June 2015.

Section 225 applies to all private companies with a balance sheet total in excess of €12.5 million and turnover in excess of €25 million for the relevant financial year, and all public companies (PLCs), excluding non-UCITS investment fund PLCs authorised under the Act (formerly ‘Part XIII’ companies). There is no equivalent exemption under the Act for UCITS PLCs, which are incorporated under the Act but authorised under the UCITS Regulations. Although efforts are being made to have the exemption extended to UCITS PLCs, there is no guarantee that this will happen within the current financial year of many UCITS companies or indeed at all.

In the directors’ compliance statement, the directors are required to acknowledge that they are responsible for securing the company’s compliance with the obligations specified in the Act. Briefly, these relate to specified provisions of the Act (the breach of which constitute serious offences) Irish tax legislation and additional market abuse requirements in respect of listed companies. The Directors are also required to confirm whether the following actions have been completed during the financial year (together, known as the compliance actions):

  • Drawing up a compliance policy statement, setting out the company’s policies as to compliance by the company with the obligations specified in the Act
  • Establishing appropriate arrangements or structures designed to secure material compliance with these obligations (compliance arrangements)
  • Conducting a review of the arrangements or structures referred to above.

If the compliance actions have not been attended to, the directors are required to specify the reasons why in the directors’ compliance statement. The responsibility for compliance with the obligations rests with all the directors of the board. If there is default in compliance with the above requirements, each director to whom the default is attributable shall be guilty of a category 3 offence − an offence punishable with a fine not exceeding €5,000 and/or a maximum term of imprisonment of 6 months.

The Act provides that the Compliance Arrangements will be regarded as being ‘designed to secure material compliance’ with relevant obligations ‘if they provide a reasonable assurance of compliance in all material respects with those obligations’.

Most companies will already have internal structures and measures in place, particularly around the annual audit, that go some way towards satisfying the requirements regarding adequate accounting records, tax and major company law compliance. From a director’s perspective, it is necessary to determine the relevant obligations that apply to the company and to identify existing, or to put in place new arrangements and structures that are appropriate, using the above ‘reasonable assurance’ test, to ensure material compliance with these obligations. The relevant obligations applicable to the company and the corresponding compliance arrangements should be documented. These can then be reviewed during the financial year.

The burden should not fall solely on directors. The Act specifically allows directors to rely on advice from employees or advisers ‘who appear to have the requisite knowledge and experience’ for the purposes of putting in place the appropriate compliance arrangements.