On 20 October 2020, the Central Bank of Ireland (CBI) published the findings of its thematic review of the implementation of Consultation Paper 86 (CP86) Fund Management Companies – Guidance (Guidance) which took full effect on 1 July 2018. The objective of this Guidance is to set out the standards to be met by the fund management companies (FMCs) including self-managed UCITS and internally managed AIFs in respect of their governance, management, control and resourcing.
At the introduction of the Guidance, the CBI emphasised that they would be reviewing how the FMCs implemented this Guidance. The thematic review undertaken by the CBI covered all 358 active FMCs and spanned 18 months. There were three distinct phases in this review: industry questionnaire, desk-based review and onsite review. The three aspects that were focused on in this review were the areas of investment management, risk management and organisational effectiveness.
Key findings
Based on the CBIs findings, a large portion of FMCs were not able to fully implement the Guidance covering the new regulatory requirements and below are the significant findings noted:
- A number of FMCs did not have sufficient resources – the CBI expects 3 full-time employees at a minimum for small entities to fulfill different levels of responsibilities and this should increase depending on the level of nature, scale and complexity of the FMCs’ operations
- Designated persons failed to fulfill their roles – insufficient time was given to accomplish these roles to a level of quality and confidence
- Ineffective supervision and oversight – there was not an appropriate level of due diligence and approval of policies and procedures
- Lack of risk management framework in place – the Guidance requires all FMCs to have risk management policies approved by the Board of Directors on a regular basis
- Absence of appropriate level of Board approvals – the CBI requires discussion, reporting and formal records made by the Board to provide evidence of approval of new fund structures and related risks
- No indication of formal documentation from Organisational Effectiveness Director (OED) – at a minimum, the Guidance calls for annual reporting conducted by the OED to the Board of Directors
- CEO not appointed – the CBI expects that all but the smallest FMCs should have a CEO
- Board composition – tenure and ongoing independence of INEDs should be considered on an ongoing basis. There should be sufficiently regular rotation of the Board of Directors to ensure independent challenge at this level
- Gender imbalance – gender diversity at Board level to form part of the governance review
What happens next
As a result of these findings, the Central Bank has commenced supervisory engagement with FMCs where specific concerns have been identified. This engagement will for many firms result in risk mitigation programmes on these specific matters. The CBI now expects all FMCs, particularly those authorised more than 3 years ago, to critically assess their operations, identify the necessary steps to ensure that they meet the required standards and make necessary changes to ensure full and effective compliance with the Guidance while taking into account the findings of the review.
FMCs should action a gap analysis (assessment) and remediation (implementation plan). 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; and
- How resources and operational capacity will need to increase to deal with a market and/or operational crisis.
The FMCs should prioritise completing their firm’s analysis of the CP86 requirements and have an action plan discussed and approved by the Board by Directors by the end of Q1 2021.
In 2022, the CBI plans to conduct a further industry wide review over the firms that they have supervisory engagement with, where specific concerns have been identified and on whether actions have been taken in relation to these findings.
How can we help
Grant Thornton provides audit and advisory services to numerous FMCs. We have experience in working alongside FMCs in meeting their audit, risk and compliance requirements.
Grant Thornton can work with FMCs to understand the impact of the key findings of the thematic review of the implementation of Consultation Paper 86 on your business and consider practical solutions for their business. We can assist to understand the key findings by providing and independent gap analysis and remediation plan (if needed) to ensure that you are fully compliant with the Guidance.
Contact
If you have any questions on the above, please contact a member of our Financial Services Audit and Financial Services Advisory teams.
