A (very) Brief History
Since 2014, the Central Bank of Ireland (CBI) has focused on shining a spotlight on the effectiveness of Irish fund management companies. Through its consultation paper “Guidance on Fund Management Company Effectiveness” — colloquially referred to within industry as CP86, and finalized in late 2016 — the CBI introduced new governance requirements including rules on board composition, director time commitments, organizational effectiveness, prescribed managerial functions, and a number of other governance and oversight obligations. Ireland is not alone in its focus on board responsibilities and corporate governance, but the level of detail and prescription the CBI has used in assessing governance standards is unique.
CP86 was anything but a “set it and forget it” project once it was finalized in 2016. Since then, the CBI has maintained its focus on fund governance and has raised the bar with regard to substance and governance, most notably for new applicants setting up an Irish fund management company as a result of Brexit. In 2019, the CBI began a thematic review of the implementation of CP86 when it wrote to over 300 Irish management companies (ManCos) and self-managed investment companies (SMICs) asking questions of their governance structures, level of delegate oversight, detailed analysis of director time commitments, and how the organizational effectiveness of the boards was functioning.
After this industry-wide outreach, the CBI began a series of desktop reviews of a sample of ManCos and SMICs in late 2019. This has continued into 2020, with many reviews occurring remotely due to the COVID-19 pandemic. The desktop reviews exhibited an increased level of granularity and homed in on background and qualifications of Designated Persons, requesting the appointment letters of designated persons, review of management reporting received from fund delegates, board materials, and proof of independent assessment by appointed designated persons. The desktop reviews specifically examined the role of the director with responsibility for organizational effectiveness and requested items such as organizational effectiveness reports and the required board assessment questionnaires, which the OE director is responsible for compiling. The reviews have also included interviews with a range of directors and designated persons with a goal of compiling a broad picture of the steps taken to comply with CP86 across the industry.
What to Expect?
Now with that work completed, the industry awaits with bated breath the publication of the CBI’s findings. It is expected that the findings will come in the form of an industry wide “Dear CEO” letter. The timing of release remains unknown, but many believe it will come in September. Several questions remain, but it is widely expected that there will be changes required to existing governance requirements across a range of areas including:
- Headcount Requirements – This will be dependent on the nature, scale, and complexity of funds
- Organizational Effectiveness – There is a heightened expectation on report compilation
- Director Time Commitments – The expectation is that the CBI will once more raise the bar in time to be committed to oversight responsibilities
- Chain of Approvals – The CBI is increasingly focused on full board approvals for fund authorizations and changes to fund documentation in advance of these being submitted to the CBI for review
With all of that in mind, I recently spoke with Daniel Lawlor, Managing Director from Aquest and former Central Bank of Ireland supervisor about the forthcoming CBI CP86 Dear CEO letter.