The Central Bank is currently focusing on the governance of Irish domiciled funds and the appointment of directors to such funds. Three specific developments are highlighted here.
Voluntary Corporate Governance Code
Seperate to the Corporate Governance Code referred to here, the Central Bank has invited the funds industry to prepare a voluntary corporate governance code (the "Code") to apply to all Irish regulated investment funds. A draft is currently being prepared by representatives of the industry and it is expected that the Code will be implemented before the end of this year. This initiative follows similar measures proposed for banks and insurance companies and may address issues such as a restriction on the number of non-executive directorships to be held by any one director (taking into account the nature, scale and complexity of the relevant fund), a process to address potential conflicts of interest, due diligence procedures for the selection of directors, board meeting attendance requirements and whether there should be a minimum number of independent non-executive directors on each board.
Number of Directorships
In September 2010, the Central Bank issued correspondence indicating that it is concerned about the high number of directorships held by some individuals. It specified that this is an issue which it expects to be addressed in the Code.
In the meantime, the Central Bank requires any individual who holds more than 30 directorships (including regulated and unregulated companies and Irish and non-Irish companies) to bring to the attention of the board of the relevant fund that:
- the Central Bank is concerned about the high number of directorships held by some individuals;
- the Central Bank has requested that the funds industry develop the Code;
- the Code must include recommendations regarding the optimal number of directorships for individuals; and
- when the Code is adopted, individual boards may need to be restructured to take account of any recommendations.
Appointment of Directors Through Conduit Companies
On 24 September 2010 the Central Bank addressed a letter to the chairpersons of all Irish authorised investment funds (the “Letter”) requesting details of any directors appointed through conduit limited liability companies. The name of the conduit company and copies of the relevant agreement between the fund and the conduit company was also requested.
The Central Bank requires that all appointments of directors must be made directly by the investment fund in question. It has also noted that the arrangements which it has reviewed involving the appointment of directors by conduit firms contained clauses that it viewed as being inconsistent with a director’s fiduciary responsibilities and contained limitations on the liability of directors which it would not be prepared to approve.
Directors who have such arrangements, or similar arrangements, in place have been requested to contact the Central Bank by 22 October 2010.