CP86 – the next round
In June the Central Bank of Ireland (CBI) published its
The challenge for the self-managed model
third consultation paper on CP86 - Fund Management and their directors
Company Effectiveness – Managerial Functions,
The consultation paper and draft guidance, brings additional
Operational Issues and Procedural Matters, and is
burdens which will result in challenges for SMICs and their
looking for further feedback from the industry by
directors. The following points in particular are worth highlighting
from the paper.
August. It has also, once again, extended the period
where management companies, whether selfDelegate oversight
managed or not (SMICs and non-SMICs ), have to
comply, one year after the end of this consultation
“Fund Management Companies are guided
phase. So what was originally planned for December
to have directors that are very actively
2015 has now been extended to August 2017. Any new
engaged in controlling the fund management
management companies or self-managed-funds which
company and overseeing delegates.”
launch, however, will have to comply with the new
Central Bank of Ireland
structures from day one.
Please see our previous paper CP86 - the end
of the SMIC? for background on the CBI’s
previous feedback and guidance on CP86
aimed at improving the effectiveness of Irish
fund boards and management companies.
In relation to investment management oversight, directors should
review and approve a detailed investment approach for each subfund and carry out regular on-site visits. In relation to distribution,
directors of management companies should review and approve
a specific distribution strategy for each sub-fund, review regular
distribution reports and have access to marketing material. Again
from the CBI:
“It is a significant undertaking for directors to
carry out all the tasks set out in the Central
Bank’s delegate oversight guidance.”
The role of designated persons
Location of directors and designated persons
The paper makes it clear that it does not expect directors to be
involved in managing a fund management company on a day-today basis. This role falls on the designated persons. The CBI states,
rather ominously, that if a fund management company
delegated tasks to third parties and did not have designated
persons in place, it
The applicable requirements will be determined by the CBI’s
“PRISM” approach to categorising fund management companies
as follows:
“could be one which had delegated to the
extent that it might be a letterbox entity within
the meaning of the relevant legislation.”
Based on these new onerous requirements is our opinion that the
directors of self-managed companies will require assistance in
order to meet the increased operational burden of CP86.
Monitored e-mail inbox and document retentions
The paper states that fund management companies should
maintain a dedicated and monitored email address for all
investment funds under management. It states that the inbox
should be monitored “constantly (i.e. daily)”. This is going be a
challenging for directors of self-managed investment companies
who will be reluctant to set-up, monitor and maintain a separate
email address.
Another tricky requirement, particularly for non-Irish domiciled
management groups is that of document retention. Fund
management companies will be required to keep all of their
records in a way that makes them immediately retrievable in or
from Ireland. When the Central Bank meets representatives of a
fund management company in Ireland and asks them to produce
a record of the fund management company (such as board
minutes, policies and procedures, letters of engagement, contracts
with delegates, reports to designated persons), they should
be able to produce this record immediately. In this regard, the
fund management company will be required to adopt a detailed
document retention policy.
A fund management company with a PRISM impact rating of
Medium Low or higher will be required to have at least:
–– three Irish resident directors or at least two Irish resident
directors and one designated person based in Ireland
–– two thirds of its directors in the EEA
–– two thirds of its designated persons in the EEA.
A fund management company with a PRISM impact rating of Low
will be required to have at least:
–– two Irish resident directors
–– two thirds of its directors in the EEA
–– two thirds of its designated persons in the EEA.
A fund management company will be required to satisfy the CBI
of the appropriateness of any arrangements involving designated
persons in different locations and demonstrate that the
designated persons can co-ordinate their roles effectively.
At present the CBI requires only that two Irish resident directors
be on the board of each fund management company. The new
rules will put non-EEA firms at a distinct disadvantage as they will
have less flexibility to source directors and designated persons
from their home jurisdiction. Investment management groups
that are primarily located outside of the EEA, for example the US,
and potentially UK managers post Brexit, may face difficulties in
finding suitable persons to act as directors, particularly given the
more onerous fund directors time commitments provisions under
CP86. There is already evidence in the market that many directors
are now refusing to take on new directorships where they have to
carry out designated persons’ roles.
The independent route
For boards and directors concerned about these issues and the
new duties and responsibilities of CP86 more generally, using
a third party management company or independent AIFM (for
alternative funds) may prove a practical solution.
The Manco / AIFM takes on the designated person role on behalf
of the fund for each of the management functions (with the
exception of ‘Decision Making’), removing the requirement for
fund directors to act as designated persons and be involved in the
day-to-day running of the fund. The Manco / AIFM undertakes
active management of delegates to ensure the requirements are
met. When appointing an independent Manco it is crucial that the fund
directors ensure the firm providing the service is competent to
act in this capacity. It must have suitable and skilled personnel,
comprehensive policies and procedures and ongoing maintenance
of a robust risk and governance environment matching that
expected by the CBI. It must also have the financial strength to
cover its continuing financial obligations including regulatory
capital costs. The provider should also be able to demonstrate
it has a scalable solution and the requisite systems in place for
processing and reporting (including regulatory reporting).
About us
The Manco / AIFM’s CBI approved Business Plan / Programme of
Activity will cover a fund’s requirements. As a result, funds do not
need to maintain their own individual business plans. Ongoing
monitoring and reporting (including regulatory reporting) is the
responsibility of the independent Manco / AIFM.
Capita Financial Managers (Ireland) Limited is authorised by
the CBI and is part of Capita Plc, a FTSE 100 company with
a strong balance sheet. Capita has been providing services
to funds in Ireland since 2006 and is one of Europe’s largest
independent providers of management company solutions.
Changing an existing SMIC fund structure to a Manco structure
is a fairly straight-forward process. First, the fund directors
terminate the existing administration, investment management
and distribution agreements. They then appoint an independent
Manco as manager. Finally, the manager along with directors
re-enter into administration, investment management and
distribution agreements where the manager has main oversight of
delegates, subject to the control of the directors.
This unique insight into the funds industry, allows us to help
and assist on regulatory and industry change. Leveraging our
expertise, combined with significant investment in systems
and reporting capabilities we have a market leading Manco/
AIFM solution that provides an innovative proposition for
investment managers at a reasonable cost.
Contact us
This material is for general information only and is not intended to provide specific advice.
Capita Asset Services is a division of Capita plc and a trading name of the companies in the
division that provide corporate, treasury, debt, shareholder, fund and private client solutions.
For further information about Capita Asset Services, including the regulatory status of these
companies, please visit www.capitaassetservices.com.
Paul Nunan
Managing Director Funds Ireland
t: +353 1 400 5302
e:[email protected]
www.capitaassetservices.com
FS15503