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For the Record

06 February 2020 by Gavin Coleman

For the Record

What is the role of the company secretary in fund management companies under CP86 requirements?

Central Bank of Ireland (Central Bank) corporate governance rules and guidance emerging from its detailed consultation process (known as CP86) impose strict obligations on fund management companies and alternative investment fund managers, including self-managed UCITS and AIFs (the relevant entities) in respect of record retention, archiving and access. 

Arising from CP86, relevant entities are required to have robust procedures and systems for the management of documents in place.

The CP86 rules and guidance impose obligations in respect of a relevant entity board’s oversight of its management functions, as well as outlining the Irish rules pertaining to corporate governance requirements, including document management.  

Boards must put in place a policy to address these record-keeping and retention requirements. The purpose of this CP86 Record Retention, Archiving and Retrieval Procedures (the policy) is to ensure the management, retention, archiving, access and retrieval of the records in the manner required by the Central Bank (the regulatory requirements).

Specifically, the objectives of this regulatory requirement are to:

  • support the relevant entity’s administrative and operational requirements, including adherence to and compliance with, the CP86 records regulatory requirements
  • ensure preservation of, and access to the records
  • promote day-to-day efficiency and robust management of the records
  • ensure timely dissemination of the records on request from the Central Bank
  • ensure timely destruction of the records that no longer need to be retained.

The Requirements

The Central Bank has provided a list of documents likely to fall in scope in respect of a relevant entity (the records), however, such a list is for demonstrative purposes only and should not be treated as exhaustive. It is for each board to decide on the records to be retained in order to satisfy the regulatory requirements, depending on its circumstances, business and operational requirements. These documents should be easily identifiable as pertaining to the relevant entity and the investment funds under its management and the governance of both. Examples might include, but in no way limited to documents such as: the constitution, buisness plans, management and statutory financial statements, material contracts and agreements, prospectus, key investor information documents (KIIDs), risk mitigation plans (RMPs), capital adequacy data, anti-money laundering (AML) reports, designated person (DP) reports and business continuity (BCP) plans.

The relevant documents should include:

  • documentation and records pertaining to the relevant entity including those demonstrating the governance of such entity
  • documentation and records pertaining to all investment funds under management, if applicable.

The document retention policy should:

  • be approved by the board of directors of the relevant entity
  • be enforced and audited (internally or externally)
  • be appropriate to the relevant entity’s nature, scale and complexity
  • be adequate to ensure compliance with all applicable laws, regulations, conditions and rules in respect of the relevant entity and its investment funds under management, if applicable.

A key element of this process revolves around making records available to the Central Bank immediately, on request.

The Timescale

Records must be readily accessible, easily retrievable and available on request. 

The Central Bank requires that documents requested before 1:00 pm (GMT) be provided to the Central Bank on the same day; documentation requested after 1:00 pm (GMT) must be provided to the Central Bank before 12 noon on the following day on which the Central Bank is open for business.

Board Considerations

The requirement to introduce and monitor a specific document management system fit for purpose in the context of these requirements and what that may entail for boards, workload wise, may potentially be very wide, and therefore burdensome to boards from an operational standpoint. A relevant entity board, to comply with CP86, is also required to ensure oversight of the archiving implementation processes, and will need to ensure that any restrictions pertaining to document access rights are upheld to the highest standard, taking into consideration the additional rights afforded to data subjects under the GDPR.

It is in this light that one may infer that a significant burden, both cumbersome and costly at that, is placed on the board when implementing the management and safekeeping of a relevant entity’s underlying documents.

CP86 does, however, acknowledge this burden; by leaving decision making at the discretion of the board to determine the most suitable delegate responsible for document management, and it is, in essence, open to each board to determine its own bespoke set of policies, procedures and processes in respect of its document management, though, of course, any decisions would need to comply with regulatory requirements and be proportionate to the nature, scale and activities of any relevant entity.

Industry voices would appear to favour the view that the CP86 document management oversight obligation be delegated to the relevant entity’s appointed company secretary. There are a number of reasons for this, but the main reason is that such delegation recognises the intersectional role performed by the company secretary in the course of carrying out its statutory duties in the funds sector, including their day to day dealings with the board and with the Central Bank (who they invariably liaise with on daily basis as a part of their corporate governance role and who they engage with in relation to regulatory filings).

There are many considerations as to why boards may determine that its company secretary would be the most suitable service provider to take on the oversight role of document management on behalf of a fund company. The pinnacles of the company secretarial role are those pertaining to potent underlying levels of organisation and efficiency. It is viewed by many in the industry that boards would likely gain great benefit from delegating document management coordination duties to the entity charged with many tasks of an organised nature: the company secretary.

The Company Secretary

Boards, in choosing to appoint its designated company secretary to act as that relevant entity’s designated document management coordinator, is making a prudent decision, and it does so for some compelling reasons:

● a fund’s administrative and operational requirements would be fully supported in respect of the relevant entity’s preservation of, and access to, its internal records

● the board would be sufficiently appraised that immediate dissemination of the relevant entity’s records and documents to the Central Bank would be undertaken should, for example, any records be requested from the Central Bank, with immediate action required

● a company secretary specialising in the investment funds industry, in the course of their daily engagements conducted with the Central Bank as a part of their corporate governance role, provides a unique feature that really brings home that they would be best placed, from the viewpoint of most boards, to provide designated coordination of the board’s internal document management and retention procedures. This is largely due to the company secretary already engaging in daily relations with the Central Bank as part of its role, which places them in a prime position when it comes to best servicing the requirements of an Irish fund structure

● the company secretary plays a key intersectional role amongst the board, the Relevant Entity’s designated persons and other delegated services providers (such as the fund administrator, the depository, the investment manager (service providers)) and as such is ideally positioned to furnish Records to the Central Bank immediately, if so requested. The board can rest assured that its operational and administrative requirements are being managed at the highest level.

Fund boards are, in practice, following the approach of industry peers and increasingly it has been common practice in the industry to engage the company secretary to coordinate the processes involved behind the retention and management of such Records. This is especially important in light of the previously mentioned strict deadlines imposed by the Central Bank when requesting the provision of documentation, and the company secretary is clearly in prime position from a time efficiency standpoint, to take on this role.

As highlighted previously, it is at a board’s discretion as to how they wish to implement the CP86 document management oversight requirement in practice. CP86 provides that the records to which the requirements apply include both documentation and records pertaining to the relevant entity and its governance, as well as any documentation and records pertaining to all investment funds under the relevants entity’s management.

Practical Steps

Subsequent to the delegation of such a responsibility to the company secretary, they should set about the implementation of robust procedures, controls and measures to ensure timely compliance with the CP86 records regulatory requirements. It will be necessary for the company secretary to establish a document management system and/or a document repository for the implementation of safe and efficient receipt, storage and onward transmission of the relevant entity’s records. It would invariably be at the discretion of the board to determine what documents should be stored, according to the nature of commercial activity engaged in by that entity.

The company secretary must take great care to ensure that final versions of all records are stored in the document repository. As the company secretary tends to play a pivotal role in the coordination, convening and attendance at board meetings, they would be inclined to  already have access to all relevant documentation, which again solidifies the advantage of the company secretary’s intersectional role between the board, service providers, as well as the that Relevant Entity’s ultimate regulator, the Central Bank.

CP86 makes specific reference to ‘Designated Persons’ who are required to corroboratively oversee, in addition to the board’s oversight role, the underlying management functions pertaining to a Relevant Entity. The company secretary is not a designated person for the purposes of the Central Bank’s requirements, so operational responsibility will still, theoretically, be vested in the appointed designated persons. The role of the company secretary here would, however, very much lessen the burden placed on the ‘designated person’ and the board in terms of implementing how the oversight and safekeeping of Records would work in practice.

Should a board appoint its company secretary in respect of its CP86 imposed document management role, any operational mechanics would need be clarified contractually where such company secretarial services are outsourced, such as the parties agreeing as to the extent of the responsibility held by the company secretary in its role, stating the forms of records they could keep, prescribing the company secretary’s policies for the storage (hard and software related) nature and transmission of electronic documents, as well as the schedule which had been agreed by the parties regarding record retention timelines, agreed review requirements and so forth.

The Central Bank leaves it up to boards as to how boards want to approach the set up mechanics of the company secretary being tasked with the relevant entity’s record management, and this allows leeway between contracting parties to stipulate what they wish when it comes to agreeing on issues such as liability and termination rights.

Issues of liability may potentially arise on the company secretary’s part, for example where a company secretary take on the coordination of a relevant entity’s document management, they may potentially be taking on the role of data controller and not just a processor. Therefore, in the event of any breaches arising revolving around the mismanagement of data, the company secretary may potentially face much heavier penalties as a result of any such breach, as the law may view the company secretary as the controller of data, owing to its direct involvement in its storage, amendment and management.

Gavin Coleman is director of the financial administration services and compliance team at Matheson

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