The Central Bank of Ireland (“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
In mid-2019, the CBI commenced a thematic review of compliance with CP86. Questionnaires were submitted to over three hundred ManCos and SMICs. KB Associates (“KBA”) previously circulated a summary of the thematic review process.
Following this thematic review, it is anticipated that many existing SMICs and proprietary 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 six UCITS/AIFMD managerial functions set out in CP86.
KBA has recently assisted a number of firms to address the CBI’s new time commitments. A summary of new CBI substance requirements witnessed by KBA is outlined here.
The CBI has provided an indicative timeline of Q4 2020/Q1 2021 for when it will communicate with ManCos/SMICs in relation to changes required to existing substance requirements. There are a number of structuring options available to address the new CP86 substance requirements. KBA has provided a summary of these options here.
In this note, we are pleased to provide a high-level summary of the key steps when transitioning from a SMIC or a proprietary ManCo to a third party ManCo. For simplicity, this note relates to a SMIC established as an Irish Collective Asset-management Vehicle (“ICAV”) or an ICAV supported by a proprietary ManCo. A PLC may also operate as a SMIC. Other fund legal structures such as Unit Trusts and CCFs cannot operate as SMICs. All fund structures such as a CCF/ICAV/PLC/Unit Trust, may be supported by a third party ManCo or a proprietary ManCo. KBA maintains transition plans for all structures and will be pleased to provide them upon request.
Transition Process – Key Steps
When a SMIC appoints a third party ManCo, the board of the ICAV remains in place and there is no requirement to change the directors. However, as CP86 applies at the ManCo level, many of the regulatory obligations, policies and procedures will shift from the board of the SMIC to the third party ManCo. The process of appointing a third party ManCo involves an update to fund documentation and legal agreements, which will be filed with the CBI. The process is set out in more detail below for UCITS and AIFs.
While technically the transition process can be performed within six weeks, in most instances a project plan of ten to twelve weeks is used. A number of steps can take place concurrently. The key stages are summarised below.
Initial Transition Planning
This stage involves the agreement of a transition plan and scheduling project calls. The third party ManCo will meet with the directors of the ICAV and initiate its due diligence on its proposed new delegates (administrator/investment manager) and the depositary. At this planning stage, it will also be important to determine jurisdictional/fund registration requirements and required notifications of change.
Preparation and Update of Primary Documents
This stage involves the update of the prospectus, supplements and Risk Management Process (UCITS only) to reflect the appointment of the new third party ManCo. A new management agreement will be required between the ICAV and the third party ManCo. The existing administration and investment management agreements will need to be updated to incorporate the third party ManCo as the appointing party, and the depositary agreement will need to be updated to incorporate the ManCo as a party. It should be noted that it may be possible to novate the existing agreements which are in place.
Engagement with the CBI and Shareholders
For a UCITS, this stage involves filing of the prospectus and sub-fund supplements with the CBI, which will review and provide comments over two/three rounds. For an AIF, this CBI review process does not take place. Where a UCITS changes from a proprietary ManCo to a third party ManCo, two separate Change of Service Provider (“COSP”) forms will be required. Only one such form is required for an AIF or where a new ManCo is being appointed to a SMIC. It should be noted that the ICAV shareholders will need to be notified of the intention to appoint a third party ManCo in advance.
Review and Update of Ancillary Documents and Reporting Requirements
It will be necessary to create an appendix to the existing third party ManCo governance document (UCITS Business Plan/AIFMD Programme of Activity (“PoA”)) relevant to the ICAV. Reporting requirements and service level agreements with each entity/delegate will be updated to reflect the involvement of the third party ManCo. In addition, all paying agent, representative agent and distribution agreements will need to be updated to reflect the new ManCo. For UCITS structures, updates to the Key Investor Information Documents (“KIIDs”) will also be required.
Preparation for the Appointment of the New Third Party ManCo
During this stage, a meeting of the board of directors of the ICAV will be required to approve the updated prospectus, supplements and agreements. Where relevant, the existing designated persons to the SMIC or the existing proprietary ManCo would resign.
You can download your copy of CP86 Substance Requirements: Transitioning to a Third Party Management Company 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
If you would like to discuss the contents of this note further, please contact