In December 2011, the Irish Funds Industry Association (“IFIA”) finalised the voluntary corporate governance code (the “Code”) for the funds industry, applicable to Irish fund and fund management companies together with a set of FAQs to complement the Code. The Code and FAQs have been reviewed by the Central Bank. The following are some key requirements of the Code:
The Code is voluntary but its adoption is strongly recommended. When a Board decides to adopt the Code but not to apply a particular provision of it, it should set out its reasons why (“comply or explain”) in the Directors’ Report contained in the annual financial statements or alternatively publish the information through a publicly available medium (e.g. website) referenced in the financial statements.
A company should specify the time commitment it expects from each Director in a letter of appointment. Directors are required to disclose in writing to the Board their other time commitments. In considering Director appointments, the Board shall consider possible conflicts of interest and procedures for dealing with conflicts. There is a rebuttable presumption that a maximum of eight non-fund directorships may be held without impacting a Director’s time available to fulfil his/ her role. Any “non-fund directorship” (with some exceptions) in excess of eight must be explained in the Directors’ Report.
Board Size and Composition
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.
A majority of the Board should be “non-executive” Directors and at least one of the Directors should be “independent”. Under the Code, a non-executive Director is a Director who is “not directly involved in the day to day discretionary investment management” of the fund. An “independent” Director should not be an employee, partner, significant shareholder or Director of a firm providing services to the CIS (e.g. custodian, administrator, auditor, legal advisor, consultant etc.) or be providing services personally to the company and receiving professional fees (other than Directorship fees from the company).
An informal annual review of the Board and each Director and a formal review of Board membership every three years should be carried out. The office of Chairman should be reviewed every three years.
There is an expectation by the Central Bank that all relevant companies will adopt the Code and companies have until 31 December 2012 to adopt it. A review will be carried out within eighteen months to assess adoption levels, at which time the Central Bank may decide that the Code is to be applied on a compulsory basis.
For more information on this and other recent developments please view our funds briefing.
Contributed by Patricia Taylor.
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