Consultation on fund management company effectiveness
Delegate oversight (CP86)
The Central Bank of Ireland has recently issued a Consultation on Fund Management Company Effectiveness – Delegate Oversight’ (CP86) (the Consultation). Its aim is to enhance the effectiveness of fund managers, their boards, and the boards of investment funds. It also aims to improve investor protection, particularly given the abolition of Ireland’s previous promoter regime.
CP86 is focused on two areas:
- The authorisation process where the quality of the boards and internal arrangements of fund management companies are scrutinised and;
- The day-to-day process of guiding and overseeing the administration and investment of the monies invested with investment funds.
Boards of directors have always been tasked with overseeing the operation and soundness of the companies whose boards they served on, including protecting the interests of the investors in those companies. This has included the boards of fund companies and fund management companies. These responsibilities stemmed from common law, fiduciary duties, and statutory obligations under the Companies Acts.
The framework proposed by CP86 would apply to authorised alternative investment fund managers (AIFMs), internally managed AIF which are authorised AIFMs, UCITS management companies and self-managed UCITS investment companies.
The CBI is seeking views on four areas
- Central Bank Fund Management Company Delegate Oversight Guidance
The CBI wishes to encourage oversight practices in the right direction by issuing guidance on the ‘Good governance of delegation by investment companies and management companies’ (Guidance) compiled by a Committee on Collective Investment Governance
- Streamlining designated managerial functions
The Consultation proposes to consolidate and refine the existing 15 managerial functions in the AIF Rulebook into 6, as set out in the table below, and to amend the rules for UCITS management companies and AIFMs to require them to identify “designated persons” for each.
- Requirement for Irish resident directors
Current rules require Irish companies to have at least two Irish resident directors. The Consultation proposes instead that boards of Irish resident fund management companies have two directors who are in Ireland for not less than 110 working days per year.
The Consultation does not state how the 110 working days are to be calculated, other than that it will be by a simple measure and that it will not be related to tax residency. The expected first application of these rules would be for the calendar year 2015.
- Rationale for board composition
The CBI wishes to ensure that fund managers are striving to achieve an appropriate balance of skills and competencies on their boards. The Consultation proposes introducing a new rule, as part of the authorisation process, requiring fund managers to document how a Board’s composition provides it with sufficient expertise