12 June 2015
On 31 March 2015, the Central Bank published revised client asset Regulations for investment firms (CAR) together with detailed Guidance. The publication of the Regulations and Guidance is the culmination of a lengthy review of the regulatory regime for the safe-guarding of assets which commenced in 2011 when the Central Bank commissioned a task force to carry out the review, followed by a public consultation in 2013.
The revised CAR contains the following seven core principles for investment firms:
The Central Bank also published a separate set of investor money regulations (IMR) for fund service providers (FSPs) together with detailed Guidance. The IMR relate to collection accounts operated by FSPs for monies transferred from an investor for onward transmission to the fund and likewise where money flows back from the fund to the collection account for onward transmission to the underlying investor. Collection accounts are not subject to the existing client asset requirements which the CAR task force regarded as a matter of concern. Under the revised regime, the IMR will apply to money received by the FSP from an investor where it is held in a collection account in the name of the FSP or its nominee. FSPs include UCITS and AIF management companies, AIFMs, fund administrators and depositaries.
Once the money from the collection account is transferred to the fund it ceases to be covered by the IMR but becomes a fund asset, which is then subject to the relevant fund safekeeping regime.
It is anticipated that many FSPs (typically fund administrators) will put in place solutions which are outside the ambit of IMR but are nonetheless consistent with ensuring a satisfactory safekeeping solution for the fund’s assets and those of its underlying investors.
The IMR contains six of the seven core principles referred to above, apart from ‘Client disclosure and consent’ (principally because there is typically no contractual relationship between an FSP and the underlying investor of a fund).
CAR and IMR will come into effect on 1 October 2015 and 1 April 2016 respectively, providing investment firms and FSPs some time to engage with clients and put in place the changes to existing systems, operations and contractual arrangements that will be required to ensure compliance with the new CAR and IMR regimes. Contraventions of the regimes will attract various penalties, including sanctions under the Central Bank’s administrative sanctions procedures. It should be noted that in February the Central Bank announced that CAR compliance would be one of its enforcement priorities for 2015.