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On October 20, 2020, the Central Bank of Ireland (“CBI”) released the findings of its thematic review of the implementation of its guidance on Fund Management Company (“FMC”) effectiveness (“CP86”) by relevant firms. The term FMC refers to self-managed funds and UCITS management companies/AIFMs.

The CP86 framework, which came into effect in 2017 with full compliance required by July 1, 2018, details standards which FMCs are expected to adhere to in relation to areas such as organisational effectiveness, the performance of managerial functions, delegate oversight and resourcing. The CBI review of the implementation of CP86, which took place during the 2nd half of 2019 and Q1 2020, consisted of three phases comprising an industry questionnaire, a desk-based review and onsite reviews. The review focussed on three core FMC responsibilities: investment management, risk management and organisational effectiveness. In total, the CBI assessed 358 FMCs. It reviewed 1,480 documents as part of the desk based review and conducted 30 onsite review meetings.

CBI Main Findings

The CBI review found that when applied correctly by firms, the rules and guidance set out in CP86 provide a framework of robust governance, management and oversight arrangements. It found that a number of FMCs were able to demonstrate that they were largely compliant with the framework and met the CBI’s expectations. However, the review also found that a significant number of FMCs have not yet fully implemented the framework. In particular, the CBI found shortcomings in the following areas:


The CBI found that many FMCs did not have appropriate levels of resources in place to ensure effective implementation of the CP86 framework. The CBI’s expectation is that all FMCs should have a minimum of three full time equivalent suitably qualified employees of appropriate seniority. Larger FMCs are expected to have a level and quality of resourcing determined by the nature, scale and complexity of their operations. FMCs must appoint locally based persons to conduct the managerial functions (Designated Persons). For larger firms, Designated Persons are expected to be full time roles.

The CBI review highlights material differences in the resourcing standard between firms authorised before the implementation of CP86 and those authorised after. Where FMCs employ fewer resources, the CBI found this to be symptomatic of over reliance on group entities or delegates.

Designated Persons

The CBI identified significant shortcomings in relation to how Designated Persons carry out their roles. The level of review and independent analysis of monthly reports received from delegates was deemed to be insufficient. The CBI found that Designated Persons did not commit enough time to their roles or provide evidence of enough constructive challenge.

Delegate Oversight

Many FMCs were unable to provide sufficient evidence of initial due diligence on delegates and appropriate delegate oversight on an ongoing basis. The CBI expects due diligence reviews of delegates to be completed at take-on and annually thereafter. It also highlighted cases where reliance was being placed on delegate policies and procedures but with no formalised process to review such policies and procedures. The CBI is particularly concerned about the quality of reporting received from them and the challenges made by FMCs where issues arise. The CBI also found that many FMCs did not have documented Service Level Agreements (SLAs) in place with delegates, and indicated that it would expect to see such SLAs in place.

Risk Management Framework

The CBI found that many FMCs relied on a group risk management framework, and did not have an entity specific framework and risk register in place. It indicated that the Board should approve an entity specific risk management framework which should be reviewed regularly but no less than annually.

Board Approval of New Funds

The CBI found a lack of evidence of robust discussion and challenge by FMC Boards in relation to proposed new sub-fund strategies/structures. The CBI expects Boards to be involved early in the process, prior to the submission of the application to the CBI.

Director for Organisational Effectiveness (“OED”)

There were a number of weaknesses identified with how the OED role is performed at FMCs, including:

  • lack of formal records of meetings with designated persons, which should be held at least quarterly;
  • lack of detailed formal reporting to the Board at least annually;
  • insufficient monitoring and reporting to the Board on FMC resources; and
  • lack of consideration of conflicts of interest and personal transactions.

Governance and Culture Trends Identified

The CBI review also identified other findings not specifically covered in the CP86 guidance. It found that many FMCs had not appointed a CEO and that there is a significant gender imbalance on FMC Boards. The CBI also highlights the importance of regular rotation of Board members. It questions the independence of independent non-executive directors with long tenures (over 5 or 10 years) and their ability to provide independent challenge at Board level.

Actions Required

The CBI has commenced supervisory engagement with FMCs where specific concerns have been identified. This will result in these firms being required to undertake risk mitigation programmes on specific matters.

All FMCs are required to assess their operational, resourcing and governance arrangements against all CP86 guidance taking into account the findings of the CBI’s review. FMCs are also required to put in place a time-bound action plan to ensure all necessary changes are made. The assessment and plan should consider items such as:

  • the time commitment, skills and expertise of available resources;
  • the FMCs retained and delegated tasks including how independent challenge of delegates can be ensured;
  • the tasks required by the CP86 framework, including those required to be completed on a fund by fund basis; and
  • how resources and operational capacity will need to be increased to take account of any increase in the nature, scale and complexity of the funds under management since authorisation and to deal with a market or operational crisis.

The CBI expects that each FMC will have completed its analysis and that FMC Boards will have discussed and approved an action plan by the end of Q1 2021. The CBI will conduct a further industry wide review in 2022.

Download your copy of the Thematic Review of FMC’s Governance, Management and Effectiveness here

KB Associates’ Services

KB Associates provides a range of services to investment funds and management companies including the provision of UCITS management company/AIFM services and the provision of designated persons to perform UCITS business plan/AIFMD programme of activity functions.

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