On 20 October 2020, the Central Bank of Ireland (‘Central Bank’) issued a “Dear Chair” Letter to industry outlining the findings of its review of the implementation by Irish fund management companies (‘FMCs’) of the Central Bank’s framework Consultation Paper 86, otherwise known as (‘CP86’).
In essence, CP86 was introduced to ensure that the required effectiveness and systems of governance, management and organisation are in place at FMCs to protect investors’ best interests. To assess the behaviour of ManCos, the regulatory review was carried out in three phases which uncovered widespread deficiencies in three main areas:
- Oversight; and
- Risk management.
In respect of resourcing, a number of issues were identified following the thematic review including inappropriate levels of resources. A large number of FMCs failed to appropriately increase their resources to ensure effective implementation of CP86 resulting in over-reliance on group entities/or delegates.
The Central Bank’s expectations is that FMCs -
- Must be able to clearly demonstrate ongoing and effective management of all activities.
- Should have a minimum of 3 full time equivalents (FTEs) (suitably qualified and of requisite seniority) required for all FMCs.
- Must appoint locally based persons to perform each of the six managerial functions.
It is vital the governance structure and resourcing should reflect the nature, scale and complexity of the FMC and those that are currently operating with fewer than 3 FTEs will now need to consider how they are going to address this requirement.
How GECKO can help:
CP86 specific module: To meet industry needs, we have a ready-built CP86 module that acts as a foundation for you to build out an environment that encompasses your own policies and procedures. Firms can avail of our teams industry wide expertise and CP86 software solution to assist with these demands on resourcing and create endless efficiencies for the role of DP’s and directors, making their roles easier to fulfil.
According to the Central Bank, many FMCs failed to fully implement the Guidance in the area of delegate oversight. They found not all FMCs could demonstrate that they had reviewed and approved delegate/group policies and procedures as being fit for purpose when applied to the firm. In addition, firms were unable to evidence that they had carried out the appropriate level of due diligence on their delegates, both initially, for the purpose of determining appointment, and on an ongoing basis thereafter.
How GECKO can help:
GECKO can help with these reviews by facilitating initial, ongoing and annual due diligence reviews, particularly now as they may need to be done at a distance.
Better, quicker, more meaningful reports:
The lack of board reporting was especially apparent in the area of resource evaluation. Many OEDs stated FMCs were unable to evidence how their conclusion had been reached and how they reported their findings to the board. Within 3 clicks of a button, you can drill down into a particular task within the system and choose the criteria you need to produce a detailed, high quality report to present to the board.
Documenting and evidencing:
Our software has a time-stamped audit trail that captures all other activity relating to fund launches, board meetings and director time commitments whilst evidence of challenge by the ManCo, and documented service level agreements for all delegates can be housed within the system. Conflicts of interest can also be identified, addressed and solved from one area, including the precise record of directors sign off/confirmations.
Deficiencies were identified with regards to many FMCs not having an entity-specific risk management framework, no entity-specific risk register and/or no defined risk appetite in place. The Central Bank’s expectation here is rather than firms leaning on a group standard, that they define their own risk management framework and appetite statement. The FMC board should be satisfied that the risk framework is fit for purpose and should ensure that it is reviewed at least annually.
How GECKO can help:
GECKO supports ongoing effective engagement with delegated investment managers and can demonstrate how DPs and director’s opinions originated and the fact that they were engaged early on in decision making.
Formal record keeping:
Users can create, store and maintain risk registers and risk appetite statements within GECKO showcasing how a firm sees and manages its perceived risks.
Retrieve, review and update:
Not all FMCs could evidence approval by the board of the launch of sub-funds. GECKO can show the path to approvals, ensuring that directors and key stakeholders are engaged early on and not just prior to the launch. Board approval procedures and practices can be quickly reviewed and easily updated as necessary within the system to address this requirement.
“Firms should also note that this is not a one-off review,”said Derville Rowland, Director General, Financial Conduct at the Central Bank of Ireland, “Assessing the implementation of this framework will form part of our ongoing regulatory and supervisory engagement and we will continue to challenge firms where we see weaknesses.”
The key message from the Central Bank here is that every firm differs and the “one size fits all” technique is not the approach to take. The expectation is for firms to act now, incorporate the latest guidance and resource themselves with smart technology to keep pace with these ever-increasing requirements and avoid the regurgitation of information to regulators upon data requests.
James O’Sullivan, Funds Policy Manager for the Central Bank of Ireland, recently discussed how the Central Bank is heavily reliant on this framework in a recent webinar ‘Funds Ireland Minicon’. He stated how the latest guidance has mapped flexibility in terms of structuring the resourcing model that ManCos are going to use and how critical it is for firms to put in place a time bound plan to incorporate these.
Built to meet the dynamic needs of Irish FMCs, our ready-built CP86 module is the only CP86 solution on the market for firms to demonstrate management of all activity and evidence early decision making and allows firms to build out their own suite of rules and guidance to suit their daily workflows and activities. GECKO Governance can help you keep your resourcing levels under review, particularly as operations grow in scale and complexity.
Get in touch with us to see how our software solution can help you adhere to CP86 requirements: firstname.lastname@example.org