In September 2014, the CBI1 issued a consultation paper entitled Fund Management Company Effectiveness – Delegate Oversight (‘CP86’). CP86 concentrates on funds / fund management companies under the regimes of the UCITS Regulations 2011 and AIFM2 Regulations 2013. The aim of CP86 is to ensure that the management and operation of regulated funds have the interests of the investors at their core. To achieve this aim, the CBI proposed initiatives in the following areas:
- Delegate oversight
- Streamlining of UCITS3 and AIFMD4 managerial functions
- Residency of fund directors
- Board composition.
In June 2015, the CBI published its observations on the feedback it had received from the industry. This included:
- Clarity on the separate roles of directors and designated persons including a requirement for a separate time commitment and engagement letter for a designated person. The director is ultimately responsible for oversight in contrast to the role of designated persons who are responsible for exercising control over delegates on a day-to-day basis, i.e. performance of managerial functions.
- A requirement for funds / fund management companies authorised before 1 November 2015 to amend their business plans / programmes of activity to comply with the new six managerial functions by 30 June 2016
- A commitment by the CBI to provide clarification by the end of 2015 on how it expects each of the six managerial functions to be carried out
- A decision to retain the de facto requirement for two Irish resident directors
- Guidance on directors’ time commitments where the CBI deems a reasonable number of working hours per director to be 2,000 per year. From 1 January 2016, fund boards which contain directors with excessive time commitments are likely to be subject to further CBI oversight
- A requirement for the rationale behind the composition of a fund board to be outlined in the business plan / programme of activity. In June 2015, the CBI amended its authorisation process to include this requirement
- A requirement for funds / fund management companies authorised before 1 November 2015 to put in place an organisational effectiveness role by 30 June 2016
- Direction on the responsibilities of the independent director who carries out the organisational effectiveness role. The role includes functions such as reviewing board composition, reviewing organisational structure and ensuring that adequate resources are available to carry out all managerial functions.
The CBI started the implementation of CP86 by publishing, in October 2015, the UCITS regulations and by publishing, in November 2015, the AIF Rulebook. The AIF Rulebook and UCITS regulations include the following rule amendments:
- Confirmation of the six managerial functions which are investment management, fund risk management, operational risk management, distribution, regulatory compliance and capital and financial management
- A requirement for the risk management and investment management managerial functions to be performed by different persons
- A requirement that the independent director responsible for organisational effectiveness not perform any of the six managerial functions
In November 2015, the CBI published guidance on delegate oversight which was not materially different to the draft it published in June 2015.
On 23 December 2015, the CBI advised that it was extending the deadline by which existing funds / fund management companies must update their business plans / programmes of activity to comply with the revised managerial functions and the new organisational effectiveness role. The original deadline was 30 June 2016. The CBI had originally committed to issue guidance before the end of 2015 to allow fund management companies to make the required updates. This guidance will now be published by the end of Quarter 1 2016 with the new deadline for compliance expected to be during September 2016 at the earliest.
It should be noted that all new fund / fund management company applications received by the CBI after 1 November 2015 must apply the new managerial functions and the organisational effectiveness roles immediately
How can KB Associates Assist?
KB Associates offers a range of services to investment funds including:
- The provision of designated persons to perform UCITS business plan and AIFMD programme of activity managerial functions
- The provision of UCITS/AIF5 operational support
- The provision of UCITS/AIF management company services
- Service provider selection
- The provision of directors
- MLRO6 services
- Company secretarial services.
If you would like to discuss any issues raised in this article or related to KB Associates’ services in general, please feel free to contact Mike Kirby (+353 1 667 1980), Peter Northcott (+44 203 170 8813) or Mike Parton (+1 345 946 4224).
1 Central Bank of Ireland
2 Alternative Investment Fund Manager
3 Undertakings for Collective Investment in Transferable Securities
4 Alternative Investment Fund Managers Directive
5 Alternative Investment Fund
6 Money Laundering Reporting Officer