Global Trustee and Fiduciary Services News and Views

Global Trustee and Fiduciary Services News and Views

| Issue 47 | 2017

The statistical analysis would use data available

to the Central Bank already in the form of funds’

regulatory returns.

Corporate governance

Corporate governance for investment funds and

fund managers has been a focus for the Central

Bank since its inclusion in the 2014 programme

of themed inspections, leading to the publication

of the Central Bank’s

Consultation on Fund

Management Company Effectiveness

— Delegate

Effectiveness in September 2014 (CP86)

and

to the publication of final guidance on directors’

time commitments, organisational effectiveness,

delegate oversight, managerial functions,

operational issues and procedural matters in

December in 2016.

The issue of directors’ time

commitments continued to be a component of

the themed inspection programme in 2016, with

a particular focus on directorships with extensive

sub-fund commitments. While CP86 is a domestic

initiative, it is clear that the Central Bank has had

regard to global trends in relation to substance

and the management of risk. The focus has been

on ensuring that the Central Bank will, at all times,

remain in a position to effectively supervise Irish-

authorised management companies.

It would be reasonable to speculate that

the outcome of the Brexit referendum had

an impact on one of the proposals made by

the Central Bank prior to the date of the UK

referendum. In its proposals published in June

2016, the Central Bank had proposed a location

rule, requiring that two-thirds of designated

persons or directors of Irish management

companies be resident in the EEA. While the

rationale advanced for this rule at the time

suggested that UK-based persons would

continue to be eligible following Brexit (and the

potential departure of the UK from the EEA),

the vote arguably required the Central Bank to

recast this requirement, particularly in light of

the relationship between Ireland and the UK.

The final form of the location rule, as published

in December 2016, is that half of the designated

persons or directors of Irish management

companies be resident in the EEA and that half

of the managerial functions be performed by

at least two designated persons resident in the

EEA.

The Central Bank has sought to provide

a degree of comfort to fund management

companies with directors and designated persons

located in the UK, as they plan for the post-Brexit

regulatory environment. While the Central Bank

is understandably unable to be definitive about

whether UK resident individuals will meet the

test for effective supervision until after the final

terms of the UK’s exit from the EU are known,

the Central Bank’s feedback statement includes

a lengthy list of criteria taken into account by

the Central Bank in determining its ability to

exert effective supervisory influence over a fund

management company and its management. We

believe those criteria should apply to UK resident

individuals regardless of the final terms of Brexit.

Anti-money laundering

Although not expressly referred to in either

the Strategic Plan or the 2016 programme

of themed inspections, countering money

laundering and terrorist financing is likely

to remain high on the regulatory agenda,

particularly following Ireland’s FATF mutual

evaluation review in 2016.

In a briefing to the industry in December 2015,

the Central Bank indicated that the outcome of

the review may lead to an increase in legislation

and regulatory supervision in this area. As

well as addressing possible new measures at

a national level in 2017, industry stakeholders

must also address the implementation of the EU

Fourth Money Laundering Directive by 26 June

2017. Certain provisions regarding the beneficial

ownership of corporates and other legal entities

have already been transposed into Irish law, with

the passing of the European Union (Anti-Money

Laundering: Beneficial Ownership of Corporate

Entities) Regulations 2016 in November 2016. The

new provisions require corporates and other legal

entities incorporated in EU member states to

obtain and hold adequate, accurate and current

information on their beneficial owners and

each entity must set up a beneficial ownership

in Ireland to ensure that the central register

required to be created under the EU Fourth

Money Laundering Directive can be populated

with the relevant information from June 2017.

Again, the publication of these regulations to

coincide with the FATF mutual evaluation review

is illustrative of the potential of external events

to impact on regulatory planning.

Future developments

While the Brexit vote has led to considerable

uncertainty, the Central Bank’s preparations and

planning for a possible “leave” vote in advance

of the UK referendum, its extensive experience

in working with industry stakeholders to