On 14 December 2015, the Central Bank’s Market Supervision Directorate published its programme of themed inspections for 2016 (the Programme).
This Briefing highlights the inspections that will be of most relevance to investment firms.
Our Asset Management and Investment Funds Group have also published a Briefing summarising the aspects of the Programme of most relevance to funds and fund service providers.
The Central Bank’s Director of Markets Supervision, when launching the Programme, stated that an “… underlying theme for many of these areas is the need to strengthen firms’ culture of regulatory compliance”.
The Central Bank will inspect service level agreements and operational arrangements between investment firms and outsourcing providers.
The Central Bank is expected to review how firms identify and manage risks, and how responsibility for risk management is allocated.
DIRECTOR TIME COMMITMENTS
The Central Bank will continue to focus on the time commitments of directors to their roles, following on from their work earlier this year to ensure that fund directors have sufficient time available to dedicate to those directorships.
CLIENT ASSET MANAGEMENT PLANS
Investment firms are obliged, under the Client Asset Regulations 2015 for Investment Firms (the Central Bank’s new Client Assets Regime), to produce a client asset management plan by 1 January 2016. Such plans are intended to set out firms’ business models in relation to the safeguarding of client assets, the risks involved, how firms plan to mitigate those risks, how firms’ systems and controls comply with the new regime, how boards will monitor and document significant changes to firms’ business models, how controls and processes will be changed (if necessary) and how information will be made readily available so that client assets can be distributed swiftly, in particular if a firm enters insolvency.
Further information on these plans is set out in the Central Bank’s Guidance for Investment Firms. It is expected that the Central Bank will monitor whether firms are putting these in place, and examine compliance with those plans.
The resilience of firms’ IT systems will also be examined. Firms’ management of cyber-security and related operational risks is high on the Central Bank’s agenda at the moment, having been the subject of a Central Bank review earlier this year (see our Client Briefing for further detail).
The Central Bank is expected to examine how suitability assessments are conducted, and the appropriateness of the results.
The information that firms provide on an ongoing basis to clients (for example, monthly statements) will also be the subject of an inspection.
The Central Bank will inspect firms’ approaches to managing inside information and complying with their obligations under the market abuse regime. This is particularly topical as the new market abuse regime will come into force across Europe in July 2016.
The Central Bank highlighted that the Programme is in addition to its day-to-day supervision of affected entities. Once the inspections are complete, the Central Bank is expected to contact firms to confirm what issues were noted and request that they remediate issues where the breach or related regulatory risk is viewed as unacceptable by the Central Bank.