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The Central Bank recently published the outcome of its themed review of the implementation of its Fund Management Companies – Guidance (CP86 Guidance) for governance, management and oversight of Fund Management Companies (FMCs).

Key findings

  • Resourcing: A large number of FMCs authorised prior to the introduction of the CP86 Guidance have not appropriately increased resources to ensure effective implementation of the CP86 Guidance. The Central Bank expects that all FMCs, including self-managed UCITS investment companies/internally managed AIFs, have a minimum headcount of at least three full time employees or equivalent. The Central Bank has stressed that this is a minimum expectation for the smallest and simplest FMCs. However, other FMCs will be expected to have resourcing determined by the nature, scale and complexity of its operations.

  • Designated persons (DPs): The Central Bank expects DPs to independently analyse and assess the monthly reports received from their delegates. It is not enough to accept the reports at face value without evidence of constructive challenge and interrogation by the DPs.

  • Delegate oversight: The Central Bank expects that due diligence is carried out by the FMC on an ongoing basis on each delegate at least annually. If the FMC is relying on the delegate’s policies and procedures, the FMC needs to ensure that these are reviewed annually. Service level agreements need to be put in place with each of the delegates.

  • Risk management framework: The CP86 Guidance specifies that all FMCs are required to have a robust Board-approved, entity specific risk management framework which should include, amongst other things, a risk register and risk appetite statement. The Board should be satisfied that the risk management framework is fit for purpose and reviewed regularly but no less than annually.

  • Board approval of new funds: The Central Bank expects the Board to be involved at an early stage when FMCs are considering the launch of new funds/sub-funds. The practice of board approval of fund/sub-funds immediately prior to launch without any evidence of robust discussion and challenge at early stage in the process is not in compliance with the CP86 Guidance.

  • Organisational Effectiveness Director (OED): In order for the OED to monitor the adequacy of the FMC’s resources, the OED should hold meetings with the DPs on at least a quarterly basis and these meetings should be formally documented. In addition, all OEDs are required to consider conflicts of interest and personal transactions on an ongoing basis.

Additional findings

The Central Bank also identified additional findings on governance and culture not specifically covered by the current CP86 Guidance. These include:

  • CEO: The Central Bank expects that all but the smallest FMCs should have a CEO.

  • Independent Non-Executive Director (INED): The Central Bank found that two-thirds of FMCs have INEDs with lengths of service of greater than 5 to 10 years. The Central Bank expects that tenure and ongoing independence be considered as part of the OED’s review of Board composition and forms part of related reporting to the Board.

  • Board Diversity: The Central Bank identified that only 16% of director roles at FMCs are held by women. The Central Bank recommends that gender diversity is considered as part of FMCs governance review in response to the Central Bank’s findings.


The Central Bank has found that some FMCs, in particular FMCs recently authorised by the Central Bank, are complying with the CP86 Guidance. However, a significant number of FMCs authorised prior to the CP86 Guidance coming into effect in December 2016 have not properly implemented and embedded the CP86 Guidance into their operating models.

Derville Rowland – Director General, Financial Conduct at the Central Bank when speaking at the recent Irish Funds Annual Funds Conference concluded her comments on the CP86 review by saying “CP86 was intended to bring about a step change in the sector. Our findings are that this has not been achieved to date. It now needs to be.

The Central Bank requires FMCs to critically assess their findings and put in place an Action Plan which must be discussed and approved by the Board by the end of Q1 2021.

When preparing an Action Plan, FMCs need to be particularly mindful of the Central Bank’s new substance requirements for SMICs; the critical assessment by the FMC of reports from its delegates; ongoing due diligence by the FMC on its delegates; the obligation on OEDs to meet with each of the DPs at least quarterly; and finally board involvement at an early stage in the approval of new funds.

If you would like to discuss the above findings in more detail, please contact a member of our Investment Funds team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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