On 14 December 2011, the Irish Funds Industry Association (IFIA) published a voluntary corporate governance code (the “Code”) that is to apply to Irish authorised collective investment schemes (CIS) and Irish authorised management companies (ManCos). An accompanying questions and answers paper (FAQs) has also been published to complement the Code and support its introduction. Copies of the Code and FAQs are also available on the IFIA’s website www.irishfunds.ie.
The publication of the Code follows an invitation by the Central Bank for the Irish funds industry to develop and apply its own corporate governance code in place of the statutory code developed for banks and insurance companies.
Following considerable engagement with, and input from, the Central Bank, a draft Code was prepared and earlier this year was circulated to relevant industry participants for consultation. During the consultation process a significant amount of feedback was received. This feedback was considered and discussed with the Central Bank, following which the attached Code was agreed. The Central Bank has requested that the funds industry report on its adoption after the first 12 months of implementation.
While the IFIA code is voluntary in nature, the Central Bank considers it “essential” that all Irish authorised CIS adopt the Code, albeit on a voluntary basis.
Timeframe for Implementation and Compliance
The Code becomes effective from 1 January 2012 with a twelve month transitional period. A survey will be carried out within an 18 month period to assess the extent of adoption rates among the industry. Depending on the outcome of the survey and the general approach by the funds industry to the Code, the Central Bank will review its voluntary nature and application at that point.
A statement of compliance should form part of the audited financial statements of the CIS/ManCo. If the CIS/ManCo has a year end of 31 December, the first statement of compliance should be included in the financial statements as of 31 December 2012; if the CIS or ManCo has a year end of 30 June, the first statement of compliance should be included in the financial statements as of 30 June 2013.
Where a Board of a CIS or ManCo adopts the Code but decides not to apply a particular provision of the Code, it should set out the reasons as to why that provision has not been adopted in the Directors’ Report or alternatively publish the information through a publicly available medium (eg website) detailed in the annual report.
What the Code Contains
The Code has been drafted based on the various existing regulatory and corporate governance procedures currently applied through the Central Bank Notices and the Companies Acts. Furthermore, below are some of the additional key provisions which need to be considered in terms of assessing Board composition on an ongoing basis:
The key requirements contained in the draft Code applicable to the Boards of CIS and ManCos are:
- the Board shall be of sufficient size and expertise to adequately oversee the operations of the CIS or ManCo. It is recommended that the Board of Directors will have a minimum of three directors. It is further recommended that the Board comprise a majority of non-executive directors1 and at least one independent director, who would not be an employee, partner, director or significant shareholder of any service provider firm2 receiving professional fees from the CIS or ManCo. it is recommended that at least one director should be an employee of the promoter or investment manager;
- a minimum of two directors on the Board should be Irish resident;
- each member of the Board is required to have sufficient time to devote to the role of director and associated responsibilities. The Board shall document the time commitment expected from each director in a letter of appointment. There is a rebuttable presumption that a maximum of eight non-fund directorships may be held without impacting the Director’s time available to fulfil his or her duties as a Director of a CIS or ManCo;
- all Directors are expected to attend and participate at meetings and an attendance schedule should form part of the annual informal Board performance review process. Directors who reside abroad may attend via telephone or video conference but would be expected to attend at least one meeting per year in person;
- there should be an informal annual review of the performance of the Board and of each individual Director and a formal documented review taking place at least once every three years;
- a non-executive Chairman should be appointed to the Board and should be reviewed at least once every 3 years;
- the Board of Directors of a UCITS fund will be required to meet at least quarterly. For non-UCITS funds, such as QIFs, the Board may meet less frequently if it believes this is justified but this must be disclosed in the Directors' Report that forms part of the annual financial statements of the CIS or ManCo;
- in considering Director appointments, the Board shall assess and document its consideration of possible conflicts of interest. The Board shall also document its procedures for dealing with any such conflicts and shall review compliance with those procedures at least annually;
- a CIS or ManCo which constitutes a "public interest entity" within the meaning of the European Communities (Statutory Audits) (Directive 2006/43/EC) companiesRegulations 2010 is obliged to establish an Audit Committee in accordance with the criteria set out therein;
- Directors must be aware of the relevant policies and procedures of the CIS/Manco and should have received adequate and sufficient training to enable them to discharge their duties.