CP86 Conclusion

Insights

CP86 Concludes

Central Bank of Ireland ("CBI”) has published the complete Fund Management Company Guidance (“the Guidance”)

The Central Bank of Ireland (“CBI”) has published the complete Fund Management Company Guidance (“the Guidance”) which addresses the governance, compliance and effective supervision of fund management companies. Fund management companies are UCITS management companies, authorised alternative investment fund managers (AIFMS), self-managed UCTIS and internally managed alternative investment funds (AIFs) that authorised AIFMS.

About the Guidance

The Guidance in its entirety covers the areas of delegate oversight, organisational effectiveness, directors’ time commitments, managerial functions, operational issues and procedural matters.

The conclusion and release of the completed Guidance reflects the CBI’s commitment to supporting an effective fund governance framework for fund management companies. It is clear that the CBI has taken on a number of comments provided by industry during the consultation process and the changes provided in the final guidance are to be welcomed. The Guidance sets out clearly and transparently the CBIs expectations for fund management companies. We believe as fund management companies navigate their unique governance and board responsibilities this Guidance should ensure higher standards of corporate governance, which is a positive development.

The Guidance reflects the industry feedback from the last consultation, and the industries specific concerns regarding the “designated person and location rule”.

On the 19th of December 2016 statement by Gerry Cross the Director of Policy and Risk : “Today’s publication on the outcome of our consultation on fund management company effectiveness is an important milestone and marks the conclusion of 3 years’ policy work on the matter. It means that we have now published a substantial body of guidance for fund management companies which sets out clearly our expectations of directors and management. This is supplemented by a small number of new rules which together delivers a package of measures that addresses the governance, compliance and effective supervision of fund management companies.”

The Guidance - What do you need to consider?

We believe one of the points of most interest to clients will be the new “Rule on Effective Supervision” for directors and the designated person residency requirements:

Where a management company has a PRISM impact rating of:

a) Medium Low or above, the management company shall have at least -
i. 3 directors resident in the State or, at least, 2 directors resident in the State and one designated person resident in State,
ii. half of its directors resident in the EEA, and
iii. half of its managerial functions performed by at least 2 designated persons resident in the EEA, or

b) Low, the management company shall have at least -
i. 2 directors resident in the State,
ii. half of its directors resident in the EEA, and
iii. half of its managerial functions performed by at least 2 designated persons resident in the EEA.

 

International Implications

In relation to this “location rule” requirement for directors and designated persons it is evident that the CBI listened and carefully considered the industry submissions on the previous consultation before they issued the final guidance. In practice this means that fund management companies can decide to have some managerial functions performed outside the EEA.

The CBI has also taken steps to anticipate the impact of Brexit and while it cannot future proof for all eventualities it has tried to ensure effective fund management can be performed by directors and designated persons who are non-EEA residents. The Feedback Statement and the industry submissions received are available on the CBI’s website. The Guidance also includes a helpful section on what the CBI’s expectations are for designated persons and on the retrievability of records.

Question: When does a fund management companies have to comply with the new rules introduced by CP86?
Answer: 1 July 2018 and authorisation for any new fund management company submitted on or after 1 July 2017 will only be granted by the CBI where the fund management company is to be organised in compliance with CP86.

Since 2014, as the CP86 process has evolved, fund management companies have been actively making changes and taking steps to implement requirements. Changes required by the final guidance should not be problematic for most firms.

The CBI will use this Guidance when forming it’s view as to whether a fund management company has complied with its regulatory obligations. The final CP86 rules contained in the Guidance will be included in the amended CBI UCITS Regulations and in CBI AIF Regulations.

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