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On 20 October 2020, the Central Bank of Ireland (“the Central Bank”) published the outcome of a thematic review of the effectiveness of fund management companies (UCITS Managers and AIFMs, including self-managed UCITS/AIFs), writes Gillian Kelly of our Risk Consulting practice.

The requirements were introduced in 2017 for new firms and in 2018 for existing firms, after an iterative period of consultation which commenced in 2015. These requirements, or this ‘framework for governance, management and oversight in fund management companies’, are commonly referred to within the industry as “CP86”.

The Central Bank has satisfied itself that “CP86”, when correctly embedded, provides a framework of robust governance and oversight arrangements.

The Central Bank’s expectation was that existing firms had been compliant since 2018, however, it was found that a significant number of firms have not implemented a governance framework to the standard set out by CP86, particularly those firms that were authorised pre-CP86. The Central Bank has warned that follow ups with firms where shortcomings were identified will be conducted and that this is not a one-off review.

All fund management companies are required to critically assess their daily operations against the requirements, while taking into account the findings of the review, and implement the necessary changes to ensure full adherence to CP86. This assessment should be completed and an action plan discussed and approved by the Board by the end of Q1 2021.

Key findings

Some of the key findings include:

  • Resources: CBI expectation that all FMCs have a minimum of 3 full time locally based employees or equivalent and full-time DP roles for larger FMCs
  • Designated Persons: Significant shortcomings were identified in how some Designated Persons carry out their role, including inadequate quality reviews and insufficient support and time allocated to discharge responsibilities.
  • Delegate oversight: Some companies were unable to evidence that appropriate due diligence/review had been carried out on delegates initially and on an on-going basis, with some not having formal SLAs documented.
  • Risk management framework: A high level of over-reliance on Group was found. Each company is required to have a local Risk Appetite Statement and Risk Register which are relevant to their operations.
  • Board approval of new funds: Not all companies could evidence approval by the Board of the launch of sub-funds, or in cases of approval, insufficient time was dedicated to discussion and challenge of these.
  • Director for Organisational Effectiveness: In many cases, it could not be demonstrated that the O ED acts as a change leader due to lack of Board reporting, evidence of resource evaluation and formal records of meetings with Designated Persons
  • Governance and culture trends identified - A significant gender imbalance was found, with only 16% of Director roles held by women. In addition, it was found that the majority have not appointed a CEO and that some INEDs have excessive tenures.

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