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On December 19th 2016, the Central Bank of Ireland (“CBI”) published the final guidance on consultation paper 86 (“CP86”). CP86 addresses the effectiveness of Fund Management Companies (“FMCs”). The process commenced in September 2014 with the publication of the first of three consultations on this topic. The objective of CP86 is to introduce initiatives “designed to underpin the achievement of substantive control by FMCs, acting on behalf of funds, over the activities of their delegates.” The guidance applies to UCITS management companies (“ManCos”), authorised Alternative Investment Fund Managers (“AIFMs”), self-managed UCITS and internally managed Alternative Investment Funds (“AIFs”) that are authorised as AIFMs. CP86 provides guidance on seven key areas:

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

This paper provides a comprehensive overview of CP86.

Rationale for Board Composition

The CBI requires that each FMC include the rationale for its board composition in its UCITS business plan/AIFMD Programme of Activity (“PoA”). It must outline how the board of directors (“board”) as a whole provides the FMC with sufficient expertise to properly fulfil its responsibilities. The review of board composition is a key task for the independent director who performs the organisational effectiveness role. The CBI has emphasised the importance of FMCs keeping their business plans/PoAs up-to-date. The rationale for each change in board composition must be set out in the business plan/PoA. Since June 2015, new FMCs are subject to this requirement as part of the authorisation process. For existing FMCs, the requirement is to include the rationale for board composition when the next business plan/PoA update is being made.

Directors’ Time Commitments

The CBI conducted a thematic review in 2014 to assess the number of directorships held by directors on the boards of FMCs and investment funds. The CBI issued guidance to assist boards and directors in assessing the appropriate time commitment of directors in fulfilling their roles.

Key Points in the Guidance
The CBI deems that an individual director with more than 20 directorships and an aggregate professional time commitment in excess of 2,000 hours per year to be “high risk”.
After January 1st 2016, boards with “high risk” are subject to additional CBI oversight and are assigned priority consideration in CBI thematic reviews where board effectiveness is being tested.
The CBI has advised that it will engage directly with individual directors who:

  • Have a high number of directorships; and
  • Have a high aggregate level of professional time commitments.
Directors and boards are required to agree a minimum time allocation for board meeting attendance which should include all necessary preparation and travel time. This should be documented in the director’s letter of appointment.
The CBI has stated that individuals with multiple directorships should consider the conflicts that may arise when sitting on a number of boards and the corporate interconnectivity that is created.
Where a director acts as a designated person a separate letter of appointment and time commitment should be issued in respect of that role

Organisational Effectiveness

An independent director is required to undertake an organisational effectiveness role to ensure that the relevant FMC is organised and resourced in an appropriate manner on an on-going basis. It is not a requirement that the responsible director be the chairman however the function aligns with the role one would expect a chairman to perform. A separate letter of appointment (including time commitment) is required for this role. The UCITS Business Plan/AIFMD PoA must be updated to reflect this appointment. The independent director performing this role may not perform any of the six UCITS/AIFMD managerial functions. For FMCs authorised before November 1st 2015, compliance is required by July 1 st 2018. For all other FMCs, compliance is required from the date of authorisation. The CBI has provided a non-exhaustive list of matters to be reviewed. These include the following:

Areas of focus Examples of Good Practice
Is the board composition appropriate and operating effectively?
  • The board contains individuals with an appropriate mix of skills, knowledge and industry experience to oversee the FMC’s performance.
  • The board receives extensive reporting from both the delegates and the designated persons.
  • The board holds quarterly meetings to oversee the management of the FMC.
  • A board effectiveness evaluation/review takes place annually
Are the internal resources of the FMC adequate? (directors and designated persons)
  • Directors have the relevant expertise and skills and participate actively in quarterly board meetings.
  • Designated persons appointed by the board have the appropriate skill, competence and capacity.
  • The designated persons have the capacity to receive monthly reporting from the administrator, depositary  and investment manager and to provide quarterly
    reporting to the board.
Is the organisational structure of the FMC fit for purpose?
  • The FMC is authorised under the UCITS regulations/the AIFM regulations and is managed and supervised by its board.
  • Functions delegated such as investment management, administration and the performance of managerial functions have been assigned to suitably regulated/qualified firms/individuals having appropriate expertise and capacity.
  • The board has appointed a depositary, a legal advisor and an external auditor with appropriate regulatory skills, expertise and capacity.
  • Quarterly reporting is provided to the board at each board meeting by the third parties listed above with the exception of the auditor who reports annually.
  • Material issues are reported by the third parties to the designated persons who assess these issues and escalate to the board as appropriate
Are there adequate arrangements for the supervision of delegates?
  • The FMC employs sufficient suitable resources and there is a robust reporting and review framework in place to review delegate performance.
  • Both the directors and designated persons ensure that the FMC operates in the best interests of investors and monitors the FMC delegates on that basis.
Is the conflicts of interest policy appropriate for the
  •  The conflicts of interest policy of the FMC addresses:
  • The identification of circumstances which may give rise to a conflict of interest which entails a risk of damage to the interests of the FMC or investors in the relevant funds.
  • The procedures to be followed to manage, record and resolve such conflicts.
  • The conflicts of interest policy is reviewed annually.


The CBI has not set a specified frequency for the performance of tasks arising from the organisational effectiveness obligations. An annual in-depth assessment supported by ongoing monitoring evidenced by reporting to each quarterly board meeting may be appropriate.

Managerial Functions

The CBI has streamlined the number of UCITS managerial functions from ten to six and the number of AIFMD managerial functions from sixteen to six. There is one completely new managerial function, distribution. The six managerial functions under both UCITS and AIFMD are as follows:

  • Investment management.
  • Distribution.
  • Fund risk management.
  • Operational risk management.
  • Regulatory compliance.
  • Capital and financial management.

For FMCs authorised before November 1st 2015, compliance is required by July 1st 2018. For all other FMCs, compliance with the six managerial functions is required upon authorisation.

Each FMC must appoint a designated person to each managerial function. A designated person may be appointed to more than one function. However the same person cannot perform both the investment management function and either of the risk functions. Designated persons may be directors or employees of the FMC. Alternatively, they can be seconded to the FMC by a firm which specialises in the provision of designated persons.

Designated persons should receive letters of appointment from FMCs specifying the time commitment and the rate of payment. The letter of appointment must require the designated person to act in the best interests of investors. Where a director acts as a designated person, he/she will receive a letter of appointment for each role. Designated persons are an FMC’s line of management between the board and delegates. They monitor compliance by the FMC with its regulatory obligations and report to the board on a regular basis.

If an FMC delegates tasks to third parties and does not have designated persons in place to ensure sufficient managerial oversight, the FMC risks being deemed a letterbox entity.

The CBI provided significant comment on the performance of managerial functions. Key matters addressed include:

Required competencies and capacity of designated persons

Designated persons should have experience and expertise in the managerial functions they have responsibility for. They should be up-to-date on the latest developments in order to perform the role effectively. Designated persons should also be sufficiently senior in their role, not be more junior than the delegates they are monitoring and they should have sufficient experience to be able to meet with the CBI as required. Designated persons should have enough time available to perform their roles to a high standard.

Documenting the delegation of tasks

Where an FMC delegates tasks (e.g. fund administration, investment management), this should be documented in a contract such that the delegate knows exactly what its responsibilities are.

Policies and procedures

The UCITS and AIFM regulatory frameworks require certain policies and procedures to be in place. Appropriate policies and procedures must be designed, implemented and complied with on an on-going basis and reviewed periodically. In many cases, an FMC will rely on the policies and procedures of its delegates. Where an FMC intends to rely on a delegate’s policies and procedures, the FMC’s policies and procedures should document that this is the case. They should also document how the FMC will test that the delegate’s policies and procedures are being complied with and provide details on the role of the relevant designated person in this regard.

Coordination with boards – board oversight

The delegate oversight guidance referenced previously identifies six distinct areas where boards should direct specific attention in the oversight of delegates. These are aligned with the key managerial functions for FMCs. FMCs should ensure that designated persons monitor the implementation of actions and strategies approved by the board.

Designated persons are responsible for the production of management information for the board which allows the board to conduct appropriate monitoring of the work of the designated person on a regular basis. Designated persons should agree appropriate reporting thresholds with the board and identify key performance indicators which trigger immediate escalation from delegates and designated persons to the board.

Performance of managerial functions – monitoring and oversight of regulatory obligations

Certain regulatory obligations are rules where compliance is a matter of fact such as the initial capital requirement for an external AIFM. In these cases, designated persons should ensure that it is evident from the reporting they receive that the FMC is complying with the rule. Other regulatory obligations require the FMC to exercise judgement, e.g. an AIFM must ensure integrity and confidentiality of information. Where judgement is required, the designated person should receive sufficient reporting and have sufficient expertise to make an appropriate judgement. The rationale for assessments made should be documented and supported by evidence.

Frequency of monitoring and oversight

FMCs should review the regulatory obligations applicable to each managerial function and consider the frequency of interaction that is appropriate. The frequency of monitoring, oversight and the receipt of information from delegates is determined by a number of factors including:

  • The complexity of the investment strategy and the types of investment instruments utilised.
  • The markets in which a particular fund operates.

Designated persons should monitor the tasks for which they are responsible on a “day-to-day” basis. This does not necessarily mean that monitoring and oversight has to take place daily, although this could be the case. The frequency of monitoring and oversight will be driven by the activities of the FMC and its investment funds under management.

Reporting from delegates to designated persons

FMCs should create a monitoring and oversight framework that allows designated persons to receive the information necessary for them to oversee and monitor compliance by the FMC with its regulatory obligations, policies and procedures and any directions from the board. Designated persons should ensure that the monitoring and reporting framework which has been designed allows the FMC to demonstrate compliance with all policies and procedures.

Meetings between designated persons and delegates

Designated persons should hold regular meetings with delegates. These may be physical meetings or conference calls. Such interaction with delegates should take place on a more frequent basis than board meetings.

Designated persons should also perform on-site visits to delegates. The frequency of on-site visits is not prescribed. Onsite visits to administrators and custodians are normally completed annually. We anticipate that three years may be an appropriate timeframe for such visits to investment managers, supplemented by an annual desktop review. However, the scale and complexity of fund structures and strategies may suggest more frequent visits.

Approach to information received from delegates

Designated persons should approach information received from delegates with healthy scepticism. They should not accept information received entirely at face value and should challenge delegates and follow up on issues raised to ensure they are concluded satisfactorily. Designated persons should record their engagement on reports received from delegates. Where a designated person enquires further into information received from a delegate, a record of this engagement should be retained. The CBI advises that evidence of constructive challenging by designated persons of information received from a delegate points towards an FMC that is well managed and which takes compliance with regulatory obligations seriously.

Allocation of regulatory obligations to managerial functions

Each FMC should review the regulatory obligations placed upon it and identify under which managerial function each regulatory obligations falls. The CBI has provided a framework detailing how it believes the regulatory obligations set out in the AIFM Regulations and UCITS Regulations could be allocated to each managerial function. Appendix I includes a table which provides examples of some of the managerial obligations placed on AIFMs and/or UCITS ManCos which were identified by the CBI as falling under each of the six managerial functions.

Delegate Oversight

The delegate oversight guidance details the CBI’s expectations in respect of the monitoring of delegates by an FMC. It applies to all FMCs immediately. It includes details of appropriate reporting to be received by an FMC, escalation mechanisms and the type of ongoing communication that is appropriate between the relevant parties. The CBI clarifies that key delegates include the fund administrator, investment manager and distributor.

The CBI distinguishes between the role of a director and that of a designated person. A director is responsible for oversight while a designated person is responsible for exercising control over delegates on a day-to-day basis, i.e. performance of managerial functions.

The guidance states that good governance exists where the allocation of responsibilities is clear, e.g. through fund documentation such as Business Plans/PoAs, policies and procedures and internal structures. The CBI highlights the importance of open dialogue between an FMC and its delegates along with co-operation between all parties.

The CBI has provided a framework with examples of good practice across six key areas as follows:

  • Investment Management
  • Distribution
  • Risk Management
  • Operational Risk
  • Investment Operations and Administration
  • Support and Resourcing

The examples of good practice are set out in Appendix II. The CBI notes that the framework should be adjusted for each FMC so that it is “appropriate and commensurate to the business of the relevant FMC and, where applicable, the investment funds it manages.”

The CBI also deals with structures where an external/third party FMC is appointed to an investment fund. This model is increasingly prevalent with the external FMC being directly responsible for fund governance and regulatory compliance. The CBI has outlined how the fund and the external FMC should work together as follows:

  • The board of the investment fund retains ultimate responsibility for management. It should satisfy itself that the external FMC, which is its principal delegate, is performing its tasks to a satisfactory level and that any conflicts of interest are identified and managed.
  • The board of the investment fund retains responsibility for issuing the prospectus. It should receive information as to the investment approach of the external FMC. The board is also responsible for publishing audited financial statements but in the case of an AIF, this responsibility is shared with the external FMC.
  • The board of the investment fund should expect to receive reporting from the external FMC in a number of areas.

These include:

  • A description of its performance (directly or through delegates) of the investment tasks in Appendix II.
  • A description of significant developments in the distribution of the investment fund.
  • A description of its performance (directly or through delegates) of the risk management tasks outlined in Appendix II.
  • A description of its performance (directly or through delegates) of the operational and administrative tasks outlined in Appendix II.
  • A description of the extent of its delegation of any of the tasks and its control framework for oversight of its delegates’ performance.

Operational Issues

Rules on the location of directors and designated persons (effective supervision)

The CBI has confirmed that an FMC which has a Probability Risk and Impact SysteM (“PRISM”) impact rating of “medium low” or above will be required to have at least:

  • Three Irish resident directors, or at least two Irish resident directors and one designated person based in Ireland;
  • Half of its directors in the EEA; and
  • Half of its managerial functions performed by at least two designated persons resident in the EEA.

The CBI has confirmed that an FMC which has a PRISM impact rating of “low” will be required to have at least:

  • Two Irish resident directors;
  • Half of its directors in the EEA; and
  • Half of its managerial functions performed by at least two designated persons resident in the EEA.

Most FMCs, including self-managed structures, have a “low” PRISM impact rating. There are a number of factors with impact the PRISM rating including:

  • Assets under Management (“AUM”)
  • Number of sub-funds
  • Type of investments (i.e. how risky are the investments and the extent of the use of derivatives)

The requirement for half of the managerial functions to be performed by at least two designated persons resident in the EEA is a point that requires attention as it has been widely misinterpreted within the industry

These effective supervision requirements apply from July 1 st 2018 for FMCs authorised before June 30th 2017. For FMCs authorised after June 30th 2017, they apply immediately.

A key point to note is that the CBI has scaled back on the proposed requirement that two thirds of fund directors be based in the EEA. The CBI has acknowledged that the BREXIT vote in the UK was a significant factor behind the change. Given the prevalence of UK (36.9%) and US (40%) fund managers operating Irish domiciled funds, it was felt by respondents to the consultation that imposing the two thirds rule would have a negative impact on Ireland’s competitive position as a fund jurisdiction for non-EEA fund managers, in particular those from the UK (post BREXIT) and the USA.

Record retention and retrievability of records

FMCs must retain records that are retrievable on an immediate basis. If the CBI requests documentation from an FMC before 1pm (Irish time) on a given day, it must be provided to the CBI on the same day. For any documentation requested by the CBI after 1pm (Irish time) on a given day, it should be provided to the CBI by 12 noon on the following business day. Each FMC is required to have a record retention policy which is subject to audit either by an external auditor or by the internal audit function of the FMC. These requirements apply from July 1 st 2018 for FMCs authorised before June 30th 2017. For FMCs authorised after June 30th 2017, these requirements apply immediately.

The CBI has provided a non-exhaustive list of records which must be maintained by FMCs and the related sub-funds which they manage. For the FMC, these include audited financial statements, UCITS business plans/AIFMD PoAs, Business Continuity Plans (“BCPs”), board minutes, policies and procedures, letters of engagement, contracts with delegates and reports to designated persons. A detailed list is included in Appendix III.

Dedicated e-mail address

Each FMC is required to maintain a designated e-mail address for correspondence with the CBI. This e-mail address must be monitored at least daily to ensure that swift responses are provided to all CBI requests. Compliance with this particular part of the guidance was required by April 28th 2017.

Procedural Matters

The procedural matters section of the guidance deals with applications for authorisation by FMCs and details of the information that the CBI requires where an overseas FMC proposes to use its ManCo passport. The procedural matters guidance is currently effective.

FMC applications for authorisation

The CBI has outlined the requirements for an application for authorisation as an FMC. A summary of the requirements is included in Appendix IV.

FMC passport

An FMC authorised by the CBI may carry out activities for which it is authorised under the UCITS and/or AIFM regulations in another member state either by the establishment of a branch or under the freedom to provide services. This is known as the FMC passport. The CBI has provided guidance to FMCs wishing to avail of this.

Prior to transmitting an FMC passport proposal, the CBI will engage with the competent authority in the FMC’s proposed host member state to identify whether there are any significant local requirements which are imposed on investment funds in that jurisdiction that would impact on the complexity of providing services in that jurisdiction. The CBI expects that an FMC will have a greater level of resources where it proposes to act as manager to a non-Irish fund. In this case the FMC will be expected to have sufficient knowledge of the local regulatory regime. An example of this is knowledge of the types of breaches which need to be reported on and the timeframe for this reporting.

The CBI expects that an FMC will describe how it will monitor compliance with regulatory requirements that are applicable in the home state of the relevant fund on a day-to-day basis. The CBI also advises that FMCs should have representatives available to travel to the fund’s home member state to attend and report at board meetings of the fund. An FMC must provide the CBI with an analysis of the impact on its minimum capital requirement of managing a fund that is authorised in another member state.

A Summary of What is New in CP86

The principal new items introduced in CP86 may be summarised as follows:

  • A requirement that the rationale for board composition be outlined in the business plan/PoA.
  • A requirement that 50% of directors be in the EEA.
  • A requirement that 50% of managerial functions be performed by at least two persons in the EEA.
  • The introduction of an organisational effectiveness role.
  • A requirement that where a director performs a designated person role there be a separate appointment letter and time commitment.
  • Guidance on directors’ time commitments, where the CBI deems a reasonable number of working hours per director to be 2,000 per year.
  • The streamlining of the managerial functions to six in respect of both UCITS ManCos and AIFMs and the introduction of a new function, distribution.
  • A requirement that the investment and risk managerial functions be segregated.
  • A requirement that designated persons have supporting evidence and a documented rationale for assessments made while carrying out managerial functions.
  • A requirement that designated persons be more senior than those being supervised and that, where appropriate, they constructively challenge information received from delegates.
  • A requirement that on-site visits to delegates take place.
  • A requirement that regular meetings (which may be by telephone) with delegates occur.
  • A requirement that FMCs maintain and monitor a designated e-mail address to facilitate correspondence with the CBI.
  • A requirement that FMCs maintain relevant records in an easily retrievable manner.
  • A requirement that each FMC have a documented record retention policy.

Download your copy of CP86 – A Comprehensive Overview here

How can KB Associates Assist?

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 any issues raised in this paper, please feel free to contact any of the contacts below: Mike Kirby (, +353 1 667 1980). Cormac Byrne (, +353 1 667 1981). Paul Carrigg (, +353 1 667 1982).



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