On 20th October 2020, the Central Bank of Ireland (CBI) published a letter to all UCITS management companies, authorised Alternative Investment Fund Managers (AIFMs), self-managed UCITS investment companies and internally managed Alternative Investment Funds which are authorised AIFMs. The letter sets out the CBI’s conclusions of its thematic inspection of compliance with its Fund Management Companies Guidance, which concluded the three-part CP86 consultation process.
The review found that when applied correctly by firms, the rules and guidance provide a framework of robust governance and oversight arrangements. However, it also found that a significant number of previously authorised FMCs had not fully implemented the framework.
Background
In December 2016, the CBI introduced final guidance on Consultation Paper 86 which is commonly known as CP86. The Guidance sets out that the board of the Fund Management Company should design its governance practices so as to be appropriate and commensurate to the business of the relevant company and, where applicable, the investment funds it manages.
The requirements came into full effect on 1 July 2018. From this date, the Central Bank supervisors began accessing how Fund Management Companies had implemented and embedded the new requirements and related guidance into their organisations.
The review which covered 358 active FMCs and spanned 18 months has now been completed.
Key Findings
Some of the key issues identified in the review related to:
Next Steps
The conclusions when considered against the recently issued ESMA review on AIFMD and specifically the observations on delegation, coupled with the continuing risk of no deal Brexit of the UK, make this review very significant.
Regardless of whether an FMC receives a specific risk mitigation requirement or not, the Central Bank expects all FMCs to critically assess their day to day operational, resourcing and governance arrangements against all relevant rules and guidance.
The assessment and implementation plan should at a minimum consider the following:
- The time commitment, skills and expertise of available resources;
- The FMC’s retained and delegated tasks, including how ongoing independent challenge of all delegates can be ensured;
- The tasks required by the framework, including those that must be completed on a fund by fund basis;
- How resources and operational capacity will need to increase to take account of any increase in the nature, scale and complexity of the funds under management since authorisation or the last time the FMC critically assessed its operations;
- How resources and operational capacity will need to increase to deal with a market and/or operational crisis.
Analysis should be completed and an action plan discussed and approved by the Board by end Q1 2021.
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