Ireland has continued to retain its dominant position within the European investment funds industry. With continued growth over the last 30 years, assets under management of Irish funds have reached yet another record level at €3 trillion and over 1000 global managers with assets administered there.
Irish funds are subject to a high level of regulation. Generally, this regulation comes from European legislation and the Central Bank. As a result of Brexit, the role of the European Securities and Markets Authority (ESMA) is being enhanced.
With the evolution of CP86 from the Central Bank of Ireland (CBI), the regulatory burden has increased for managers in the Irish Funds market. The webinar speakers reflected on some of the future challenges as we await the CBI paper later this year.
“After a three-year period of implementation, CP86 is the longest and most complex of regulations and guidance issued by the CBI.”
– Gayle Bowen, Pinsent Masons
Here’s some highlights from their conversation:
The changing landscape of the Irish Funds market
The panel discussed several important areas of focus for participants in the Irish Funds Market, the outlook for Management Companies (ManCos) and Self-Managed Investment Companies (SMICs) in Ireland.
The impact of Brexit, and ESMA rules, has meant that the landscape of fund management has changed and substance requirements are increasing as a result.
One key theme running through the discussion was that this was a huge issue for the Irish Funds Industry and that assessment of all companies intending to operate as a SMIC would be required going forward. It is becoming more apparent that the SMIC proposition has run its course with no new SMIC fund application approvals in recent times.
“Tilting towards operational governance is nudging managers to move from SMICs to ManCo model.”
– Adrian Waters, Independent Director
There was agreement across the panel that managers will be required to have more robust business plans ensuring that their policies, procedures, SLAs, material contracts and delegate policies are all aligned with the business plan. Documents will no longer be kept static with the objective of continuous scrutiny keeping them live and up to date.
Substance and talent
Substance is one of the key challenges of CP86, in particular with reference to expanding time commitments for INEDs and DPs. At this point, it is not clarification of regulation that is required but ‘prescription and publication’.
The regulatory squeeze is expected to be extended to SMICs and will undoubtedly add to cost. The magnitude of this cost will render many fund complexes economically unviable. The CBI will continue to be focused on ‘burden of proof’ when many SMICs don’t have the systems, processes or resources to meet these standards.
The issue of talent was a concern. It was felt that a full due diligence of people was important to ensure that any candidates or new hires fulfil experience and expertise requirements going forward, assuming people with the right experience to match required functions can be found. Additional cost to these managers is going to be unavoidable. Hiring may not be economically viable, therefore an external third-party ManCo might be the only option to provide the ‘bullet proofing’ required.
Clarity, consistency and simplification
Clarity from the Regulator is still required and consistency of approach will play a big part in ensuring that the Irish market is commercial, open, welcoming and understandable to firms that would like to relocate. A level playing field is needed for all participants. It was strongly felt that it is time for the guidance from the CBI to be prescribed and published.
If a ManCo model is desired, this should be stated by CBI, rather than having a situation where it becomes increasingly difficult for SMICs to remain viable. Transparency and clarity will provide SMICs with the correct level of information required to address any substance deficiencies.
The SS&C webinar was packed with insights on the evolution of CP86 and the challenges of the CBI Paper. At AMX, we look forward to working collaboratively with asset managers and investors to help review their individual requirements and plan for future changes.
“We owe it to ourselves and the rest of our industry to keep it alive and flourishing, by informing our clients, colleagues and competitors about what is coming. If we do that, we can make progress together.”
– Eoin Motherway, AMX