The Investor Money Regulations for fund service providers will soon take effect on 1 July 2016 and will apply to collection accounts operated by fund service providers. The overall aim of the regulations is to safeguard and enhance investor protection by requiring firms to properly segregate, monitor and reconcile collection accounts on an ongoing basis.
On 31 March 2015, the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Investor Money Regulations 2015 for Fund Service Providers (the “IMR”) were enacted.
The IMR applies to collection accounts, i.e. subscription and redemption accounts, operated by fund service providers, e.g. AIFMs, UCITS Managers, depositaries and administrators.
There are 6 core ‘Investor Money Principles’ of an investor money regime (the “Principles”) which apply to a fund service provider (“FSP”) operating collection accounts which hold investor monies.
- Segregation: Investor monies must be held separately from those of a FSP. A FSP is deemed to hold investor monies when they are received from an investment fund and deposited to a collection account for onward transmission to a particular investor without delay, but in any event no later than one working day. Investor monies shall only be used in accordance with an investor’s instructions.
- Designation: Investor monies must be clearly identified with the words ‘collection account’ in the name of the account. A FSP must enter into an agreement with a financial institution prior to opening a collection account with it, known as an ‘Investor Money Facilities Letter’, the terms of which are set out in the IMR.
- Reconciliation: A FSP must maintain accurate records and books in order to facilitate the verification of figures in the reconciliation. Daily and monthly reconciliations must be performed between the FSP’s internal records and those of a third party holding investor monies.
- Daily calculation: A daily calculation must be carried out to ensure that the balance of investor monies is equal to those held by the FSP. Should a shortfall occur, the FSP must provide for same out of its own assets. Failure to perform a daily calculation must be notified to the Central Bank without delay.
- Risk management: An appropriate risk management system must be in place governing the operation of collection accounts. A new ‘pre-approval controlled function’ has been introduced in this regard under the Central Bank’s fitness and probity regime, namely the Head of Investor Money Oversight.
- Investor money examination: An external audit must be carried out on the safeguarding of investor monies by a FSP, at least on an annual basis. It is essential that the external auditor has the necessary resources available and the full cooperation of the FSP.
The IMR will become effective from 1 July 2016, following an extension from 1 April 2016 by the Central Bank. Please click here for a copy of the IMR.
Guidance for Fund Service Providers
The Central Bank has also published guidance to assist FSPs in interpreting the IMR. For a copy of the guidance, please click here.
The IMR are investor-driven: their purpose is to strengthen the protections surrounding investor monies. It is essential that FSPs are alert to the changes to be introduced by the IMR and ensure that sufficient policies and procedures are put in place.