Earlier this week, the Irish Funds Industry Association (“IFIA”) published a draft voluntary corporate governance code (the “Code”) for the funds industry, applicable to Irish authorised collective investment schemes (“CIS”) and Irish authorised management companies (“Mancos”). A copy of the draft Code is attached. In 2010, the Central Bank of Ireland (the “Central Bank”) published a compulsory corporate governance code applicable to credit institutions and insurers but, in acknowledging the unique characteristics and already high level of corporate governance within the funds industry, adopted a different approach and asked the industry, through the IFIA, to develop an industry voluntary corporate governance code. The draft Code is the culmination of liaison between a wide range of industry participants. A different code applicable to service providers to the funds industry, including administrators and custodians, will be published separately. The Code will replace the corporate governance code issued by the IFIA in September 2010 (which is an interim corporate governance code issued largely to assist CIS listed on the Irish Stock Exchange in complying with their obligations to disclose a corporate governance statement in their Director’s Report under Directive 2006/46/EC). Many of the provisions of the Code reflect actual legal requirements or regulatory requirements imposed by the Central Bank under their UCITS and non-UCITS Notices. The Code does however impose specific conditions, particularly around the composition of the Board of Directors. The following are the main aspects of the Code which are either key or would impose new/different requirements on Boards of CIS or Mancos than currently subsist:
1. Effective Date
The Code will become effective from 1 September 2011 and it is envisaged that there will be a transitional period of 12 months.
2. “Comply or Explain”
The Code is voluntary but its adoption is strongly recommended by the Central Bank. When a Board decides not to apply any provision of the Code it should set out its reasons why (“comply or explain”) in the Directors’ Report contained in the annual audited financial statements or alternatively publish the information through a publicly available medium (e.g. website) referenced in the financial statements.
3. The Board/Meetings
3.1 Each Board member shall have sufficient time to devote to the role of Director and associated responsibilities. Each CIS or Manco should specify at the outset and, on a periodic basis, as appropriate, the time commitment it expects from each Director.
3.2 There is a rebuttable presumption that a maximum of 8 non-fund directorships may be held without impacting the Director’s time available to fulfil his or her role and functions as a Director of a CIS or Manco. Any non-fund directorship in excess of eight must be explained in the Directors’ Report. (The draft Code contains some exceptions to the universe of non-funds directorships).
3.3 Three Directors are recommended as a minimum size for any Board, two of whom (as is currently the position) must be Irish resident. At least one Director should be an employee of the promoter or investment manager.
3.4 A majority of the Board should be non-executive Directors (in fact there are rarely executive Directors of CIS or Mancos) and at least one must be “independent” (the draft Code contains the definition of “independent” and guidance in determining if a Director is independent). The independent Director should not be an employee of any service provider firm receiving professional fees from the CIS or Manco.
3.5 The Board should normally meet at least quarterly. For non-UCITS CIS, the Board could meet less frequently if it believes this is justified but this must be disclosed in the Directors’ Report.
3.6 All Directors are expected to attend and participate at meetings and an attendance schedule should form part of the annual informal Board performance review process.
3.7 There should be an informal annual review of the Board and a formal review every three years.
3.8 A non-executive Chairman must be appointed to the Board of the CIS or Manco and should be reviewed at least once every 3 years.
The IFIA has requested that any observations or feedback from the draft Code be forwarded to it before 24 June 2011 ([email protected]). If you would prefer, we can pass any of your observations or feedback to the IFIA.
For further information, please contact our Partners listed or your usual contact in our Asset Management and Investment Funds Team.