When Central Bank of Ireland first mooted a review into fund management company (FMC) effectiveness in 2014, it followed a growing trend in ensuring investor protection and market integrity through robust governance, management and oversight. With implementation in 2017 for new firms, and 2018 application for existing, the CBI outlined their clear requirements for organisational effectiveness, performance of management functions, delegate oversight and resourcing in CP86.
The CBI has been busy reviewing the effectiveness of the implementation of its’ requirements and published the outcome of their thematic review at the end of October.
Out with the old (models) and in with the new?
The CBI are generally happy with the more recently authorised firms. It appears that framework has landed well in this category with appropriate levels of resourcing and the implementation of the requisite governance, management and control frameworks.
The picture is not as bright for the previously authorised firms. Issues have been identified in the following fields:
- Resourcing: They have not grown to reflect the nature, scale and complexity of the firm
- Designated Persons: Questions raised over how some Designated Persons discharge their duties
- Delegate Oversight: Inadequate evidence of appropriate due diligence conducted on delegates
- Risk Management Frameworks: firms lacking an entity-specific risk management framework, no entity-specific risk register and/ or no defined risk appetite
- Board approval of new funds: Lack of evidence for approval of new sub-funds and the required evidence of robust discussion and challenge at board level
- Organisational effectiveness director: record keeping is lacking to evidence meetings with the Designated Persons and an absence of formal reporting to the board particularly on resource evaluation
- Gender balance: only 16% of Director roles held on FMCs by women…
Director General of Financial Conduct, Derville Rowland was quoted stating:
“…too many firms evidenced significant shortcomings. The lack of attention to issues that affect good governance is unacceptable and raises serious concern for the Central Bank. It is particularly concerning in light of the increasingly complex landscape in which firms operate.”
So, what’s next?
In the spirit of the holiday season, firms where specific concerns have been identified have joined the ‘naughty list’ and will be spending time with a supervisory engagement. The regulator has reminded firms publicly of their ‘supervisory and enforcement’ powers to help resolve the matters identified.
The fun does not stop there and is not limited to those on the aforementioned ‘naughty list’. All FMCs must do the following:
- ASSESS: Critically assess their daily operations against the requirements of CP86
- CONSIDER: Take into account the findings of the thematic review and ensure that these are considered within the assessment of daily operations
- IMPLEMENT: Make the necessary changes to ensure full and effective embedding of all aspects of the framework
- EVIDENCE: Develop an action plan when analysis is completed and ensure Board approval before the end of Q1 2021
With a timeline which requires Board approval and CBI submission prior to the end of Q1 2021, the time is certainly ticking to ensure a robust review of CP86 adherence.
How can we help?
The Devlin Mambo 'Product and Distribution Advisory Group' have extensive experience of building and operating an effective EU operating model. In Ireland, we have first-hand experience of implementing the changes required for CP86, Brexit and entity governance.
Devlin Mambo can assist firms in critically assessing their day-to-day operational, resourcing and governance requirements and construct action plans to meet the Central Bank findings
If you would like any additional detail or would like to discuss further, please contact Graeme or your Devlin Mambo relationship consultant.