Following on from its initial work in relation to "Fund Management Company Effectiveness" ("CP86") which it started back in 2014, the Central Bank of Ireland (the "Central Bank") recently issued a third consultation paper, which is available here.
CP86 covers fund management companies ("FMCs"), which include self-managed UCITS and QIAIFs as well as UCITS management companies and AIFMs. This latest consultation addresses the area of substance within these entities and unlike the current approach, appears to emphasis the role of the designated person as being crucial in meeting the letter-box entity test.
The draft guidance defines designated persons as the line of management that lies between directors and delegates, ensuring that the strategies and decisions of the Board are implemented by their delegates and providing reports from the delegates back to the Board. While directors may also undertake the designated persons role, it will be considered separate to their role as a director.
Unlike the director's function, the designated person's role should operate on a "day-to-day" basis, although it should be noted that this does not necessarily mean that they need to monitor/report on a daily basis. Designated persons need to have sufficient expertise and experience in relation to the managerial function that they are monitoring, keep up to date on latest developments and should also be sufficiently senior.
Irish Residency Requirements
FMC's will be required to ensure that the Central Bank has access to its people and records and that there are clear, effective channels of communication with the Central Bank. To achieve this, the Central Bank is proposing the following changes to the Irish residency rules:
|FMCs with low PRISM impact rating||FMCs with Medium or High PRISM impact rating|
|At least 2 Irish resident directors||At least 3 Irish resident directors or 2 Irish resident directors and 1 Irish resident designated person|
|At least 2/3rds of directors to be located in the EEA||At least 2/3rds of directors to be located in the EEA|
|At least 2/3rds of designated persons to be located in the EEA||At least 2/3rds of designated persons to be located in the EEA|
Crucially, the Central Bank appears to be open to relaxing its requirement that the designated person be Irish resident, however, the other requirements set out above should also be considered. The Irish funds industry is responding to this consultation and resisting certain items – e.g., it is resisting the requirement to appoint 3 Irish resident Directors or that 2/3rds of directors need to be located in the EEA, which could potentially be problematic for US/non-EU based investment managers.
Record Keeping and Access to Information
All FMCs will be required to keep records in a way that makes them immediately accessible and they will need to maintain a clearly defined and understandable records retention schedule outlining where documents are stored and other relevant information in relation to each document. FMCs will also be required to provide the Central Bank with a dedicated email address that should be monitored daily.
Consultation and Transitional Periods
The consultation closes on 25 August 2016 with one year for implementation for FMCs authorised before 1 November 2015. FMCs authorised since 1 November 2015 are already subject to the revised managerial functions and organisational effectiveness and will also have one year to comply with the provisions of this consultation once finalised.
While this consultation has not yet closed and may be subject to change, it does appear to mark a new departure by the Central Bank and could have a significant impact on how FMCs, particularly self-managed funds are structured in Ireland.
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