CP86 Implementation Reviews: Phase 2 Underway
On 21 June 2019, the Central Bank took the first step in its well-publicised review of the implementation of its Fund Management Company Guidance ("CP86") and issued a Fund Management Company Guidance Questionnaire ("Questionnaire") to the Chairs of all fund management companies (including self-managed investment funds).
The Questionnaire comprised seven sections, covering:
- Governance and the Business Model;
- Delegate Oversight;
- Organisational Effectiveness;
- Directors' Time Commitments;
- Managerial Functions;
- Operational Issues; and
- Procedural Matters.
The deadline for completion and submission of the Questionnaire to the Central Bank was 5 July 2019, with the Central Bank noting that its analysis of the responses to the Questionnaire would be followed up with desk-based reviews and onsite inspections of selected firms.
In August 2019, the Central Bank commenced its desktop reviews, which appear to be initially focused on organisational effectiveness, and the fund risk management and investment management functions.
As part of these desktop reviews, the Central Bank has requested a number of fund management companies to provide it with information related to these three managerial functions, including:
- board documentation evidencing discussion of any fund underperformance;
- reports of designated persons ("DPs") for investment management and fund risk management;
- annual presentations by the DP for investment management on fund performance;
- reports following any onsite visits to service providers;
- schedules of due diligence visits on investment managers and due diligence carried out on most recently appointed investment manager; and
- details of key performance indicators triggering escalation of matters by these DPs to the board.
Fund management companies that are selected for further onsite inspections following the desktop review will be formally contacted by the Central Bank in due course.
New Liquidity Stress Testing Rules for Investment Funds
Fund liquidity looks set to remain a regulatory and supervisory priority at both domestic and EU level over the coming year. In an industry letter issued on 7 August 2019, the Central Bank highlighted the importance of liquidity risk management and liquidity stress testing in investment funds and, at EU level, ESMA has published its final guidelines on liquidity stress testing in UCITS and AIF s ("Guidelines").
The Guidelines apply to fund managers and provide guidance on how they should carry out liquidity stress tests on the individual funds that they manage and how depositaries should fulfil their obligations regarding these stress tests. The Guidelines are supplementary to the requirements on liquidity stress testing ("LST") in the AIFM and UCITS Directives and may be applied proportionately, having regard to the nature, scale and complexity of each fund. The Guidelines apply to UCITS and AIFs, with ESMA clarifying that this includes those funds established as money market funds, ETFs, and leveraged closed-ended AIFs1 .
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This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.