In October 2020, the Central Bank of Ireland ("CBI") published a Dear Chair Letter to Irish regulated UCITS management companies, AIFMS, self-managed UCITS funds and internally managed AIFS ("Management Companies") in which it required all Management Companies to critically assess their operations to identify the steps necessary to ensure that they meet the Central Bank's expectations in a number of areas, including resourcing1. The Dear Chair Letter confirmed that all Management Companies must have a minimum of 3 full time employees, each of whom should be "suitably qualified and of appropriate seniority to fulfil the role".
In response to the Dear Chair Letter, many self-managed UCITS funds and internally managed AIF funds have taken the decision to convert to an externally-managed fund, in many cases engaging a third party management company2 to act as manager to the relevant fund.
Issue of revised UCITS Q&A and Q&A on AIFMD by the Central Bank
Under Regulation 107 of the Central Bank (Undertakings for Collective Investment in Transferable Securities) Regulations 2019 and Regulation 11 of the European Union (Alternative Investment Fund Managers) Regulations 2013 as amended, a Management Company must consult with the Central Bank prior to introducing material changes to its operating model.
On 10 September 2021, the CBI issued a revised edition of its UCITS Q&A and AIFMD Q&A ("Revised Q&A"). In the Revised Q&A, the CBI provides that where new business results in a material increase in the nature, scale or complexity of a Management Company's business (whether through a standalone transaction or on a cumulative basis), this is considered to be a change which "materially affects the basis on which authorisation has been granted". It notes that in such circumstances, the Management Company must notify it of such changes to its operating model in accordance with Regulation 107 of the Central Bank (Undertakings for Collective Investment in Transferable Securities) Regulations 2019 and Regulation 11 of the European Union (Alternative Investment Fund Managers) Regulations 2013 as amended.
The Revised Q&A explains that this notification obligation is triggered in circumstances which include (but are not limited to) the following:
- Material increases in the number of funds under management; and/or
- Material increases in the number of delegates; and
- On-boarding of self-managed UCITS funds or internally managed AIFs who are changing their status to be externally managed.
The Central Bank confirms that in such circumstances, the relevant Management Company must "engage proactively with the Central Bank supervisors" and must "ensure that they are appropriately resourced to service the additional business".
As part of this engagement, the relevant Management Company must submit the following to the Central Bank:
- revised financial and business growth (AUM, number of funds/sub funds, number of delegates) projections covering a period of two years as well as detailed assumptions on which the projections are based;
- an up to date capital plan; and
- current programme of activity with increased resourcing projections for review.
1 A detailed analysis of the Dear Chair Letter is
available in our October 2020 client briefing.
2 Third party management companies are described by the CBI as "fund managers that provide a platform to business partners by setting up finds at the initiative of the latter and typically delegating investment management functions to those initiators/business partners or appointing them as investment advisers.
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