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CP86 – Central Bank of Ireland : New Substance Requirements

The Central Bank of Ireland’s (“CBI”) guidance on Fund Management Company Effectiveness (CP86) by fund management companies (‘ManCos’), self-managed UCITS and internally managed AIFs (together ‘SMICs’) provides guidance on seven key areas:

  • The rationale for board composition
  • Directors’ time commitments
  • Organisational effectiveness
  • Managerial functions
  • Delegate oversight
  • Operational issues
  • Procedural matters

The CBI is currently conducting a thematic review of the implementation of CP86 by ManCos and SMICs. In late February, KB Associates (“KBA”) circulated a summary of the thematic review process. This summary can be found here.

Following this thematic review, it is anticipated that many existing SMICs and ManCos will be subject to increased substance requirements. Substance requirements are communicated by the CBI in the form of day counts per annum required for the 6 managerial functions set out in CP86. The CBI has provided an indicative timeline of Q3/Q4 2020 for when it will communicate with ManCos/SMICs on changes required to existing substance requirements.

KBA has recently assisted a number of firms address the CBI’s new time commitments.

New CBI Substance Requirements – Recent Examples

Example One

An AIFM supporting a unit trust with six live sub-funds and AUM of approx. €500 Mln where the designated person day count across the 6 managerial functions was previously 18 days – upon a recent request to change designated persons, the CBI required a new day count of 108 days.

Example Two

A UCITS SMIC with 8 live sub-funds and AUM of approx. €300 Mln where the designated person day count across the 6 managerial functions was previously 14 days – upon a recent request to change designated persons, the CBI required a new day count of 104 days.

Example Three

A new UCITS SMIC launch with 1 sub-fund and AUM of less than €100 Mln – the CBI required a total day count of 228 days across the 6 managerial functions. This manager subsequently decided to appoint a third party ManCo as it was a more cost effective solution.

Example Four

An existing UCITS ManCo supporting a CCF with 3 sub-funds and AUM of approx. €1.8 Bln where the designated person day count across the 6 managerial functions was previously 26 days – upon a recent request to change designated persons, the CBI required a new day count of 156 days.

Example Five

An existing UCITS ManCo supporting a CCF with 1 sub-fund and AUM of approx. €250 Mln where the designated person day count across the 6 managerial functions was previously 14 days – upon a recent request to change designated persons, the CBI required a new day count of 48 days.

While there is not yet an established formula for determining the exact substance requirements going forward, it is clear that the cost of operating SMICs and proprietary ManCos is expected to increase significantly. This has prompted many asset managers to look at new structuring options. In the coming weeks KBA will provide:

  • A summary of relative merits of the structuring options available under the new substance regime, and
  • A summary of the transition process from a SMIC or proprietary ManCo to a structure supported by a third party ManCo.

You can download a copy of CP86 – Central Bank of Ireland : New Substance Requirements here

KB Associates Services

KB Associates provides a range of services to investment funds including:

  • The provision of UCITS ManCo/AIFM services
  • The provision of designated persons to perform UCITS business plan/AIFMD PoA functions
  • The provision of operational and compliance services to both UCITS and AIFMD compliant structures

If you would like to discuss the CBI’s CP86 thematic review further, please contact:

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