The Central Bank of Ireland (“Central Bank”)published its Feedback Statement (“Feedback”) and final guidance (“Guidance”)on its third round of consultation on fund management company effectiveness(“CP 86”) on 19 December 2016.

The high level results from the Feedbackare:

• The Central Bank has decided to tweak the proposed new location of directors and designated persons rule such that:
  • All fund management companies will be required to have two Irish resident directors (the current position) and at least one-half of its directors and one-half of its managerial functions performed by a minimum of two designated persons resident in the EEA.
  • Additionally, fund management companies with a PRISM rating of at least “medium low” will be required to have an extra (third) Irish resident director or at least one Irish resident designated person.

    Further, the Central Bank has decided to jettison the guidance originally proposed that designated persons should work in the same location and if not, they should be employed within the same economic group. 

• The date for the reallocation of existing managerial functions (15 for AIFMs and 9 for UCITS) into the revised six managerial functions has been deferred until 30 June 2018 (the original proposed date was 30 June 2017).New fund management companies established after 1 July 2017 will be expected to comply with the new rules and related Guidance immediately upon establishment.The date for the implementation of the location of directors and designated persons rule referred to above, organisational effectiveness role (to be undertaken by the chairman of the board of directors (if independent) or other independent director) and the retrievability of records rule has also been deferred until 30 June 2018.

The proposed location rule was one of themore controversial aspects of the third CP 86 consultation. The reduction inthe ratio from two-thirds to one-half of directors and designated persons to beresident in the EEA, and abandonment of the single location/economic groupguidance for designated persons, whilst relatively modest modifications, arenonetheless welcome. They provide non-EEA promoter groups with greaterflexibility in terms of board membership and persons performing managerialfunctions. The extension of the compliance date to 30 June2018 is also welcome as it provides promoters with an eighteen monthperiod (rather than the previously flagged twelve month period) within which toplan and take the necessary steps to implement the required changes.

Other matters in the Feedback and finalisedGuidance include the following:

• The new rules to be introduced on 1 July 2018 will be included in amended Central Bank UCITS Regulations and in new Central Bank AIF Regulations (to replace the current AIF Rulebook).
• The third CP86 consultation included internal audit tasks as part of the organisational effectiveness role, although the Central Bank had questioned whether the internal audit tasks might not be better placed within the Operational Risk Management function.On the basis of the number of diverse industry responses on the topic, the Central Bank has decided to leave internal audit as part of the suggested organisational effectiveness role, noting however that the allocation of regulatory obligations amongst managerial functions from regulatory functions is a matter for each management company. This provides flexibility to each fund management company with regard to the allocation of these responsibilities.
• The Central Bank UCITS and AIFM Regulations will require fund management companies to keep all of their records in a way that makes them immediately retrievable in or from Ireland.The final Guidance provides that “immediately”, in this context, means that documentation requested before 1pm (Irish time) should be provided to the Central Bank on the same day and documentation requested after 1pm should be received before 12 noon on the following Central Bank business day. The Feedback and final Guidance also clarifies that the company’s record retention policy be audited either externally or internally (e.g. by the internal audit function of the fund management company)

CP 86 is a mix of prescriptive rules andGuidance. Although divergence from the Guidance is/will not be a regulatorybreach, the Central Bank has indicated that it will use the Guidance as abenchmark when forming a view as to whether or not a fund company has compliedwith its regulatory obligations.  The Funds industry can expect to seeaspects of CP 86 rules and related Guidance and indeed other regulatorycompliance included in the Central Bank’s themed inspections and enforcementpriorities in 2017 and future years.

How can William Fryhelp?

At William Fry, we are offeringcomprehensive advice, guidance and support services to  fund promoters,fund management companies and service providers in relation to CP 86 andrelated matters including regulatory and good practice requirements, policydesign, document preparation, organisational effectiveness role, periodicreview process, ongoing monitoring and compliance issues, record repository andemail service and related matters.

If you would like to know more about theservices which we are offering or have any queries in relation to the mattersdiscussed above, please contact any of the partners listed or your usual contactat William Fry.