On 19 December 2016, the Central Bank of Ireland (the "Central Bank") issued its Feedback Statement (the "Feedback Statement") together with the final guidance for fund management companies ("FMCs") on managerial functions, operational issues and procedural matters (the "Guidance").
Guidance provisions
The Guidance is designed to ensure compliance by FMCs with their regulatory obligations and to allow the Central Bank to carry out effective supervision without undue constraint. We highlight below the key points of the Feedback Statement:
Final Location Rule
- Where an FMC has a PRISM impact rating of:
(a) Medium Low or above, the FMC will be required to have at least:
- three directors resident in the State; or two directors resident in the State and one designated person resident in the State;
- half of its directors resident in the EEA (previous proposal was a requirement of two-thirds of directors resident in the EEA); and
- half of its managerial functions performed by at least two designated persons resident in the EEA (previous proposal was a requirement of two-thirds of designated persons resident in the EEA).
(b) Low, the FMC will be required to have at least:
- two directors resident in the State;
- half of its directors resident in the EEA (previous proposal was a requirement of two-thirds of directors resident in the EEA); and
- half of its managerial functions performed by at least two designated persons resident in the EEA (previous proposal was a requirement of two-thirds of directors resident in the EEA).
Most FMCs will be categorised with a low PRISM impact rating, and will be required to comply with the organisational requirement specified at (b) above.
The designated person
- A dual appointment as director and designated person is permitted. However, the role of designated person is distinct from that of director, therefore, a separate letter of appointment is required to be signed by directors who are also appointed designated persons.
- Designated persons must be sufficiently senior in their roles in order to monitor and, if required, challenge delegates effectively.
- FMCs must not assume that its delegates will discharge the regulatory obligations placed on FMCs.
- Regular meetings between designated persons and delegates should be held to allow designated persons to properly perform their role (this is dependent on the nature, scale and complexity of the FMC).
Organisational Effectiveness role and internal audit
- While the responsibility for oversight of internal audit may be well-placed within the Operational Risk managerial function, the Central Bank considers such responsibility lies within the Organisational Effectiveness role. However, the precise allocation of regulatory obligations is a matter for each FMC to consider.
Retrievability and Audit of Records Rule
Retrievability: FMCs must keep all records in a way that makes them immediately retrievable in or from the State, notwithstanding that some records may be stored offsite (previous proposal for 'reasonable time' or 'without undue delay' was disregarded).
Audit: An annual review of an FMC's retention policy must be carried out by the directors and may be subject to an audit (either by an internal or external party).
Dedicated email address
FMCs must maintain a dedicated email address for the purpose of complying with any Central Bank requests for information.
What does this mean for FMCs?
FMCs are required to comply with the Guidance by 1 July 2018.
The Guidance is a result of three years' policy work by the Central Bank on governance, compliance and effective supervision of FMCs and is an important milestone for the Central Bank. Divergence from the Guidance will not be considered a regulatory breach. However, it is advisable that FMCs align themselves with the requirements laid out in the Guidance, as the Central Bank will consider the Guidance when forming a view as to whether an FMC has complied with its regulatory obligations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
